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NZ dollar falls on S&P move and Euro debt

Tuesday 23rd November 2010

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The New Zealand dollar fell near 77 US cents after Standard & Poor's put the nation's foreign currency credit rating on a negative outlook over ongoing offshore indebtedness.

S&P put New Zealand's AA+/A-1+ rating on a negative outlook, giving it a one-in-three chance of a downgrade over the next two years, saying it reflected the forecast widening in the country's external imbalances. The government has been under growing pressure after its tax take in the three months ended September 30 was $1.1 billion below forecast amid the $1.6 billion bail-out of Timaru lender South Canterbury Finance and the 7.1 magnitude Canterbury earthquake. International investors were still wary of Europe's sovereign debt woes yesterday as the Irish bail-out paves the way for tougher austerity measures for the ailing "Celtic Tiger".

"New Zealand's fiscal position is, relatively speaking, better than a lot of other countries - having to absorb those two shocks limits the flexibility to cope with any other unexpected future shocks," said Khoon Goh, head of market economics and strategy at ANZ New Zealand. "S&P is going to continue to weigh on the kiwi from here on."

The kiwi fell to 77.09 US cents from 77.34 cents yesterday, and edged up to 69.12 on the trade-weighted index of major trading partners’ currencies from 68.96. It gained to 65.17 yen from 64.50 yen yesterday, and rose to 78.27 Australian cents from 77.87 cents. It advanced to 56.70 euro cents from 56.25 cents yesterday, and was little changed at 48.37 pence from 48.28 pence.

Goh said the currency may trade between 76.85 US cents and 77.40 cents today as it continues to follow global sentiment in the wake of the S&P announcement.

The Reserve Bank of New Zealand's survey of economists' expectations for inflation and other major economic indicators comes out today, though it isn't expected to vary too much from last quarter's 2.6% forecast for the consumer price index in two years time.

The Irish Green Party, the junior partner in the government coalition, called for an early election after Prime Minister Brian Cowen confirmed it will ask the International Monetary Fund and European Union for as much as 100 billion euros to bail out its banks and shore up its books. Cowen said he plans to dissolve after its 2011 budget for an early election.

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