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NZ dollar rises above 77 US cents as ECB provides more support to euro zone

Friday 7th October 2011

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The New Zealand dollar rose above 77 U.S. cents after the European Central Bank announced further measures to help liquidity in the euro zone, stoking optimism Europe will manage to contain its sovereign debt crisis.

The kiwi dollar traded recently at 77.18 U.S. cents, up from 76.35 cents late yesterday. The trade-weighted index rose to 68.82 from 68.45.

The ECB kept interest rates unchanged and bank president Jean-Claude Trichet announced a 40 billion euro covered bond programme and offered one-year funding to the region's banks.

The kiwi dollar gained against the pound after the Bank of England unexpectedly announced a second round of quantitative easing, with plans to buy 75 billion pounds of government bonds.

"The eagerly awaited policy meetings from the ECB and Bank of England decisions did not disappoint," said Mike Burrowes, currency strategist at Bank of New Zealand. With no local data due out today, the New Zealand dollar will "take its cues from offshore."

Burrowes sees support for the kiwi at 76.30 U.S. cents and resistance at 77.80 cents.

The actions of the ECB and BoE helped buoy equities in Europe and the U.S. and lifted prices of commodities including crude oil because they sent a signal to markets that they are taking steps to contain the region's sovereign debt crisis.

Germany's DAX 30 jumped 3.2% and France's CAC 40 climbed 3.4%. In London, the FTSE 100 gained 3.7%. On Wall Street, the Standard & Poor's 500 Index was recently up 1.2%.

Helping buoy the risk-on sentiment, U.S. Labor Department figures showed claims for unemployment benefits rose less than expected last week to 401,000.

The figures come before key employment data on Friday in the U.S. which is expected to confirm the jobless rate held at 9.1% in September while the world's biggest economy added 55,000 jobs.

The New Zealand dollar weakened to 79 Australian cents from 79.24 cents as Australia's currency is seen benefiting more from gains in hard commodities including gold.

The kiwi climbed to 59.11 yen from 58.58 yen and strengthened to 57.45 euro cents from 57.27 cents. The local currency rose to 49.95 British pence from 49.49 pence.

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