United States Treasury secretary Jack Lew (right) has
warned Congress against waiting until the last minute to
raise the debt ceiling. Photo by Reuters.
The New Zealand dollar is likely to come under pressure
in coming weeks if the United States Government shutdown
continues, BNZ currency strategist Mike Jones said yesterday.
The kiwi had spent the past two weeks in the US82c to US84c
''For exporters and those exposed to a rising currency, the
next few weeks may well present opportunities to access the
New Zealand dollar at lower levels,'' Mr Jones said.
Most of the direction for the NZ dollar-US dollar cross had
come from the US.
That was likely to remain the case in the near-term as the US
entered a critical, but highly uncertain, period in budget
and debt negotiations, he said.
The market had so far taken a ''fairly sanguine'' view about
the impact of the government shutdown now under way.
That seemed appropriate, given the limited impact of past
shutdowns. The late 1995 episode lasted about three weeks and
resulted in a hit to US economic growth of no more than 1%.
The US currency fell again against the euro and the yen as
the US shutdown continued with no end in sight, he said.
Worries mounted the political paralysis in Washington would
lead to the Government being forced to default on its
As it appeared that the issue of raising the country's
borrowing limit would be rolled into the fight over the budget,
the US Treasury secretary Jack Lew warned not raising the debt
limit by October 17 would force the treasury to default on its
That ''could have a catastrophic effect on not just financial
markets but also on job creation, consumer spending and
economic growth'', he said.
Mr Jones said on current estimates, the US Treasury would run
out of cash soon after October 17.
That was problematic, given a social security payment of
about $US25 billion ($NZ30.1 billion) was due on November 1.
More importantly, an interest payment of $30 billion was due
on November 15.
''A failure to raise the ceiling in time to meet this
interest payment could technically constitute a US Government
default. The potential damage to the US and global economy
would be massive.''
Modern history suggested treasury bonds and the US dollar
would attract ''safe haven'' demand if Congress failed to
raise the debt ceiling, he said.
If that played out, the New Zealand dollar would be
friendless, due to its high-beta status and the country's
sizeable current account deficit.
It was not likely the sell-off would be as large as the fall
of more than 10% in 2011. But a pull-back below US80c was
probable. Any dip below US80c represented a buying
opportunity, Mr Jones said.
The BNZ year-end forecast remained at US83.5c.
World oil prices fell yesterday as the stalemate in the US
continued. US stocks also suffered hefty losses on worries
the budget battle could escalate into default.