Kiwi woes raise red flag on dlr's future

By Veronica Brown

LONDON (Reuters) - The high-yielding New Zealand dollar's dramatic tumble this year as the market focused on its hefty external deficits spells a warning for the U.S. dollar as its interest rate advantage fades, a hedge fund manager told Reuters.

David Murrin, chief investment officer at UK-based Emergent Asset Management, said the extent of the Kiwi's fall--around 10 percent against the dollar so far this year-- highlighted the risks facing the U.S. currency.

"It's all about the deficits in New Zealand. There are often pilot trades which appear and that's exactly what I think the Kiwi dollar is," Murrin said at the Reuters Hedge Fund and Private Equity Summit on Wednesday.

"We will look back and realize that people start focusing on the deficit themes and the kiwi had the worst deficit in the region," he said.

Murrin said the dollar's 13 percent gains against major currencies last year were a correction.

"In a year's time we will all be saying 'what do you think about the deficit and the U.S. dollar?'"

A very rapid global transition is expected to take place, Murrin said, involving the decline of the West -- highlighted by U.S. decline -- and acceleration of China and countries around it.

As part of this transition, Japan was seen emerging as a powerhouse, providing considerable competition to China, with a strong yen expected to be a powerful force against the dollar.  Continued...