NZ dollar near 6-month TWI low on quake and Libya

Photo / Dean Purcell

The New Zealand dollar fell near a six-month low on a trade-weighted basis as the Christchurch earthquake continues to take its toll, while a looming civil war in Libya has stoked a flight to so-called 'safe havens' by investors.

The kiwi has slumped 2.7 per cent on the trade-weighted index since the earthquake on Tuesday to its lowest point since September 2, just before the first Canterbury quake.

The disaster, which has killed at least 103 people, has markets expecting the central bank to cut interest rates at its next meeting in a bid to stimulate the economy, which has struggled to get out of its funk of the past two years.

The pessimistic domestic tone is being matched globally as violence in the Middle East escalates with Libya on the verge of a civil war.

That's encouraged investors to eschew bigger returns, and they've parked their money in the relative safety of the Swiss franc and Japanese yen. This week, the franc has strengthened 2.6 per cent to 92.53 centimes per US dollar, while the yen has appreciated 1.8 per cent to 81.86 per US dollar.

"All of the action for the kiwi has been on the cross-rates - it significantly underperformed, particularly against the safe-haven currencies," said Khoon Goh, head of market economics and strategy at ANZ New Zealand.

"Until the market gets further clarity on how bad it really is (in Christchurch), it can't really price it in."

The kiwi fell to 66.10 on the TWI from 66.19 yesterday, and was little changed at 74.67 US cents from 74.64 cents. It dropped to 61.02 yen from 61.27 yen yesterday, and declined to 69.12 Swiss centimes from 69.39. It sank to 74.06 Australian cents and was down to 54.14 euro cents from 54.30 cents.

It rose to 46.31 pence from 46.03 pence.

Goh said the currency may trade between 74.45 US cents and 75.45 cents today, and may push up a little after shedding almost two cents since the quake.

Any correction would be short-lived, and the currency faces more downside pressure, he said.

Traders are betting Reserve Bank Governor Alan Bollard will cut the official cash rate on March 10, and aren't pricing in any rate hikes over the next 12 months, down from the expected 50 basis points of rises before the quake, according to the Overnight Index Swap curve.

ANZ and ASB economists expect Bollard will cut the benchmark rate 50 basis points back to a record low 2.5 per cent.