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NZ dollar slips from two-year high vs. euro after bail-out package for Greece

Monday 29th March 2010

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The New Zealand dollar slipped from its two-year highs against the euro after the announcement of a bail-out package for debt-stricken Greece that will see a combination of loans available from the Euro-zone and International Monetary Fund.  

European leaders agreed on Friday to make bilateral loans worth an estimated 20 billion euros available to Greece if required, easing investors’ fears that the Mediterranean nation would default on its existing debts. The deal, which was endorsed by European Central Bank President Jean Claude Trichet, will tap the IMF for a third of the funds, with the remainder made up by European Monetary Union members. The euro jumped 0.8% to US$1.3481 per euro.  

“The kiwi was well off the radar on Friday with the focus on the euro after the announcement of the financial package to support Greece,” said Mike Jones, strategist at Bank of New Zealand. “The kiwi/euro was knocked from its two-year highs and dragged down the New Zealand dollar” against the greenback, he said.  

The kiwi sank to 52.29 euro cents from 52.74 cents on Friday in New York after it broke through the 53 cents mark last week. It edged down to 70.50 US cents from 70.58 cents last week, and declined to 65.77 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 65.99. It sank to 65.02 yen from 65.27 yen on Friday, and dropped to 47.45 pence from 47.57 pence.

It increased to 77.86 Australian cents from 77.82 cents on Friday in New York.  Jones said the currency may trade between 69.60 US cents and 71 cents this week as it treads familiar ranges ahead of US non-farm payrolls data out on Friday.  

Though the kiwi declined on a trade-weighted basis, the central bank’s favourite measure of the currency, it pushed up against its trans-Tasman counterpart, and Jones said the New Zealand dollar may continue to outperform the Australian dollar as investors pare back their expectations for interest rate hikes by the Reserve Bank of Australia while preparing for the Reserve Bank of New Zealand to start hiking rate.

Markets have priced in 119 basis points worth of hikes by the RBA over the coming year, according to the Overnight Index Swap curve, compared to 180 points priced in for the RBNZ.  

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