*** NEWSFLASH: Dollar Falls below 42.5 US Cents. ****
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The fall in the NZ Dollar over the last 48 hours is quite unlike any “correction” seen in the NZ currency in the past.
When the NZ Dollar fell sharply during the Asian Economic Crisis 1998 it fell with the Australian Dollar, the Yen and a basket of ailing Asian currencies.
And while there were large movements against the USD the TWI (Trade Weighted) movements were more subdued.
This time however it is the TWI that is falling through the floor. Which, as Deutsche Bank economist David Plank says, means that this is not simply the result of a strong US Dollar – rather it is weakness of the Kiwi itself that is driving the fall.
After bouncing back in the early part of this morning the NZ Dollar resumed its path downwards at 11am after the release of trade statistics showing a July 2000 trade deficit of $330 million, up from $147 million last July.
Around 11.30am it was approaching US 42.5 cents an all time low against the US Dollar experienced shortly before the dollar was floated in 1984. As this article is published the NZ Dollar is buying 42.39 cents an all-time low against the Greenback.
Arthur Grimes (formerly of the National Bank now of Victoria University) was trying this morning to out a brave face on the collapse in the Kiwi when interviewed on Radio New Zealand.
Grimes argued that the lower dollar will further boost the competitiveness of the export sector and may lead to a correction in New Zealand’s awful current account statistics.
A similar theme was followed by Finance Minister Michael Cullen at a speech to a WestpacTrust Stadium business audience where he warned again against the dangers of “talking down” the NZ economy.
The problem is however that this is not simply a matter of an economy that is being talked down.
According to David Plank and several other leading bank economists we have a situation where international investors are simply no longer interested in the NZ economy. New Zealand is, it is said, “no longer on the radar screen”.
“So how far will the Kiwi fall?” Scoop asked Plank.
“Anyone that says they know is lying. But I wouldn’t be surprised if it fell through 40 US Cents,” Plank replied.