Exporters cheer as kiwi heads south

In a move that had exporters smiling, the dollar dived by more than 2 per cent yesterday, paving the way for further falls by spooking uridashi investors who this month must decide whether or not to reinvest their money.

The kiwi yesterday touched a low of 65.14USc, an 18-month low and a 2.3 per cent fall from its level 24 hours previously.

Its fall came amid growing concerns over the unit's diminishing yield advantage over United States, Japanese and European currencies and weak domestic data.

It closed yesterday's local session at 65.35USc but looked vulnerable to further losses.

Pipfruit NZ chairman Ian Palmer said news of the kiwi's dip was "making my day" especially as it was falling not just against the greenback but across the board.

The kiwi fell to 13-month lows against the euro and two-year lows against the aussie.

The trade-weighted index, which measures the kiwi against the currencies of major trading partners, fell to 67.23, a level not seen since September 2004.

"As an exporting industry that's got to be good news for us. That will certainly add some money to the growers' pockets quite significantly," Palmer said.

"We've been sitting at quite an artificial level for quite a while, the drivers that have been holding our exchange rate up seem to be unrealistic, so maybe we're finally getting that market correction we need.

"If we got down to 60USc by the end of the year, around 0.50 euro and 35p against the pound, in fruit returns we'd certainly be a hang of a lot better off."

Affco chief executive Tony Egan said the fall was "a promising sign".

"It just needs to be sustained for businesses like ours. We need it to stay low and not fluctuate wildly."

Egan said the meat industry would be "comfortable" with a kiwi trading below 60USc.

Commentators also said the kiwi's fall was likely to trigger or renew fears about the downside risks of investing in uridashis, the New Zealand-denominated bonds sold to Japanese retail investors which have been a major support for the unit in recent years.

With about $1.4 billion worth of uridashis and their European equivalents maturing this month and new issuance slowing, the kiwi would hit the skids with a vengeance and slide if those investments were not rolled over.

ANZ senior currency dealer Mark Elliott said there was no single event which triggered the fall.

"On currency markets there's not a symmetrical relationship between information and market movements.

"A lot has to do with the underlying psychological position of the market."

Elliott said the kiwi's recent failure to regain the 67USc mark having dipped below there a few weeks ago "really has been a green light for those that were looking to seriously put short positions on the kiwi to give it a nudge".

He said those taking up short positions on the kiwi, betting it will continue to fall, included a number of international hedge funds which had been active in the market since the kiwi's fall below the key 67USc mark.

The next level of significant support for the kiwi was likely to come somewhere in the mid to low 64USc area and Elliott expected the kiwi to continue to move towards there over the next couple of days before tomorrow's Reserve Bank monetary policy statement.

The central bank is expected to keep interest rates on hold at 7.25 per cent and maintain a hawkish bias.