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Kiwi struggles higher after yesterday's plunge

Thursday 3rd March 2011

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The New Zealand dollar struggled to push higher against the greenback, following the plunge to a 10-week low yesterday in reaction to comments by Prime Minister John Key on the outlook for interest rates.

From a low around US73.80c in mid-afternoon, the kiwi had pushed to the US74.30c level by the local market open today, still well short of the US74.70c before the dive.

In an interview with Bloomberg yesterday, Key noted the market had priced in an interest rate cut by the Reserve Bank.

"That would probably be my expectation, that the Reserve Bank would cut," he said.

ANZ bank said Key's comments had taken markets by surprise. Critical levels had held but the bounce had been limited against the US dollar and non-existent against the Australian dollar.

Against the aussie, the NZ dollar took a look at a key technical level, following Key's comments and after data showed a strong, although mixed in parts, 0.7% rise in Australia's gross domestic product in the December quarter, ANZ said.

"Opening this morning around this level means support will be tested early and a move into the A72c region looks on the cards."

The NZ dollar fell to around A72.95c early today, its lowest level against the Australian currency in 18 years, then edged up to A73.20c by 8am today, having been around A73.70c before yesterday's dive.

The kiwi dropped to its lowest level in more than four months against the euro, dipping below 0.5350 euro early today, having been around 0.5420 early afternoon yesterday. By 8am it had clawed back a little lost ground to 0.5365.

The NZ dollar also dropped from 61.20 yen before Key's comments to near 60.40 yen by mid-afternoon yesterday, the lowest level in more than four months, and by 8am was up to 60.76 yen. The trade weighted index was 65.56 at 8am, little changed from 65.58 at 5pm.

In the broader market, the euro rose to a near four-month high against the US dollar and looked set to extend gains on growing expectations interest rates in the euro zone will rise earlier than those in the US.

The US dollar index, which tracks the greenback versus a basket of major currencies, fell to its lowest since early November.

The US currency has been unable to benefit from the recent spike in risk aversion amid political tensions in the Middle East and North Africa, prompting some investors to question whether the greenback has lost its safe-haven status.

 

NZPA



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