NZ dollar climbs above 68 US cents as China soothes investor nerves over Europe

Friday 28th May 2010

The New Zealand dollar climbed above 68 US cents for the first time in 10 days after China moved to calm rattled investors, saying it didn’t have plans to withdraw its exposure to the Euro-zone.

China reaffirmed its commitment to invest in Europe amid fears the region’s sovereign debt crisis would push the world’s third biggest economy out of the zone. The Chinese State Administration of Foreign Exchange posted a statement on its website saying “Europe has been, and will be one of the major markets for investing China’s exchange reserves.” Stocks on both sides of the Atlantic gained as investors pared back their pessimistic outlook, and the Chicago Options Board Exchange’s Volatility Index, or VIX, commonly referred to as Wall Street’s ‘fear gauge’, plunged 13% to 29.68.

“The news gave people an excuse to get back and start buying – the markets were severely oversold and needed a correction,” said Imre Speizer, markets strategist at Westpac Banking Corp. “The kiwi should be supported at 68 U.S. cents, and I’m modestly bullish on it for the day.”

The kiwi jumped to 68.38 US cents from 67.37 cents yesterday, and surged to 66.16 on the trade-weighted index of major trading partners’ currencies from 65.44. It advanced to 62.16 yen from 60.95 yen yesterday, and was little changed at 80.28 Australian cents from 80.22 cents. It climbed to 55.30 euro cents from 54.81 cents yesterday, and gained to 46.86 pence from 46.28 pence.

Speizer said the currency may trade between 68 US cents and 69.50 cents today, and is moving to a target range of between 68.50 cents and 69.50 cents.

Helping damp the pessimism over Europe’s sovereign debt crisis, Spain’s Parliament approved its 15 billion euro austerity package, while Portugal announced it would cut a further 15 billion euro from its fiscal deficit.

Local data is thin today, with April’s building consents unlikely to hold much sway over currency markets, barring a “shocker,” Westpac’s Speizer said.

Businesswire.co.nz

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