Currency: Kiwi looks wobbly, struggles to arrest slide

The New Zealand dollar looked wobbly today as it struggled to arrest a slide underway all this week.

Around 5pm it was buying US62.31c and A80.84c from US62.44c and A80.54c around 8.30am.

Overnight it had dropped to a three-week low of US62.03c and had been as low as A80.44c - its lowest level against the Australian currency since December 2001.

It also plunged to 68.81 yen, its lowest level since July 2004, but by 5pm had recovered to 69.29.

John Body, head of markets for ANZ Bank, said the kiwi was being hit by the continued unwinding of the carry trades put on by Japanese and European investors.

A carry trade is when low interest currencies are borrowed to invest in high yield currencies.

Japanese investors in particular now believed there were opportunities to grow their capital base back in Japan, Mr Body said.

International investors considered that because of the size of New Zealand's current account deficit and its tight monetary conditions eventually the economy would slow and the Reserve Bank would be forced to reduce interest rates.

"So therefore New Zealand's not seen as an attractive destination for capital, whereas it was for the past two to three years because of high interest rates," Mr Body said.

In the past month the kiwi had initially strengthened by default against a US dollar that was quite weak.

But because the kiwi was now seen as a low growth, high current account currency investors considered it was not the place to have their money.

Response to today's Household Labour Force Survey - which showed growth in both employment and unemployment - was muted, with the data not seen as "excessively weak", he said.

ANZ expected the kiwi would be below US60c probably within the next two months, and below A80c in the same time frame.

The New Zealand dollar has been falling throughout this year after just squeaking above US70c in January and above A95c in late-November.

It did regain some ground against the greenback in April but the slide in value picked up momentum again this week. Late last week it had been above US64c and did not say goodbye to A83c until Monday.

The TWI slipped to 61.79 around 5pm today from 62.04 24 hours earlier, although it did strengthen slightly today from 61.66 around 8.30am.

The following are Reuters currency rates:

5pm today 5pm Wednesday

NZ dlr US62.31c US62.67c
NZ dlr/Aust dlr A80.84 A81.15c
NZ dlr/euro 0.4893 0.4909
NZ dlr/yen 69.29 69.60
NZ dlr/stg 33.58 33.58
NZ TWI 61.79 62.04
Australian dollar US77.05c US77.21c
Euro/US dollar US1.2731 US1.2762
US dollar/yen 111.23 111.07

- NZPA