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Kiwi falls on rumours of RBNZ meeting, then recovers

Friday 25th February 2011

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The New Zealand dollar fell today on rumours the Reserve Bank of New Zealand (RBNZ) was holding an emergency meeting but recovered when the central bank denied the rumour.

Investors are wondering if the bank will cut the official cash rate because the Christchurch earthquake is expected to reduce economic growth and if it will do so outside its usual timetable for announcements.

It has only cut rates as an emergency measure once - after the September 11 tragedy in the United State - dealers said. Its next regular announcement is on March 10.

The NZ dollar was at US75.08c at 5pm, from US74.69c at 8am and US74.75c at 5pm yesterday. It had tested the US74.40c level on Thursday night.

The NZ dollar earlier spiked higher around lunchtime when Standard & Poor's Ratings Services said its New Zealand sovereign ratings were not immediately affected by the Christchurch earthquake.

"In our view, it is still too early to assess the overall implications of the considerable disruption to the Canterbury region and the broader New Zealand economy," S&P said today.

"The Government has sufficient flexibility to absorb additional fiscal costs without a negative impact on its creditworthiness."

Meanwhile, the Australian dollar rose to a decade high against the NZ dollar on diverging outlooks for interest rates in the two countries.

The NZ dollar fell to A74.07c at 5pm from A74.12c at 8am and A74.21c at 5pm yesterday.

Imre Speizer, senior strategist at Westpac, said investors would continue to be nervous about the possibility of a rate cut in New Zealand before March 10.

The US dollar has been weak amid a surge in oil prices as investors feared a civil uprising in Libya could spill over to other top producers including Saudi Arabia.

Further hurting the US dollar - especially against the euro - were comments by St Louis Federal Reserve President James Bullard saying the Fed can "never say never" to another round of quantitative easing, a scenario that typically undermines the greenback.

In contrast, the European Central Bank continued its hawkish rhetoric, with ECB policymaker Axel Weber saying the only way for euro zone rates to go is up.

The NZ dollar was at 0.5431 euro at 5pm from 0.5428 euro at the same time yesterday, and was 61.51 yen from 61.42. The trade weighted index rose to 66.38 at 5pm from 66.22 yesterday.



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