The New Zealand dollar fell Monday afternoon after Standard & Poor's revised its outlook of New Zealand's credit rating to negative from stable.The long-term foreign currency credit rating was affirmed at AA plus. This is the rating company's second-h
The New Zealand dollar fell Monday afternoon after Standard & Poor's revised its outlook of New Zealand's credit rating to negative from stable.
The long-term foreign currency credit rating was affirmed at AA plus. This is the rating company's second-highest rating. The outlook change implies a one in three chance of a downgrade in the medium term.
S&P also revised to negative the outlooks of six government-related entities.
The NZ dollar fell from around US78.29c to US77.28c on the announcement and then rose to US77.58c.
"The outlook revision on the foreign currency ratings reflect our recognition of the risks stemming from New Zealand's projected widening external imbalances in the context of the country's weakened fiscal flexibility," said sovereign ratings credit analyst Kyran Curry.
"New Zealand's vulnerability to external shocks, arising from its open and relatively undiversified economy, also raises risks to the country's economic recovery and credit quality."
Positives include the country's fiscal and monetary policy flexibility, strong institutions, economic resilience and its actively traded currency.
The negative outlook on the New Zealand foreign currency ratings reflected the possibility of a ratings downgrade if New Zealand's external position did not improve.
Rising public savings would be an important component of such an improvement. The rating could fall, too, if New Zealand's current account weakened because of any higher real cross-border funding costs within its banks.
"The main risk to the ratings would be a significant weakening in the credit quality of New Zealand's banking sector, which is largely owned by the Australian banks," said Mr Curry.
The organisations also put on a negative outlook were New Plymouth District Council, Wellington City Council, Auckland District Health Board, Counties Manukau District Health Board, Housing New Zealand Corp, and Housing New Zealand Ltd.
