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Kiwi drops below US73c as Irish debt concerns flare up

Monday 20th September 2010

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The New Zealand dollar dropped below 73 US cents for the first time in almost a fortnight as concerns over Ireland’s debt sapped investors’ appetite for higher-yielding, or riskier, assets.  

Yields on Irish 10-year bonds rose to a record 387 basis points above German’s bunds after Barclays Bank said the debt-stricken nation may need to tap the International Monetary Fund to bail out its lenders.

Though the report was denied by Finance Minister Brian Lenihan and the IMF, it kept support for risk-sensitive assets on the back foot. Weak American consumer confidence data added to the downbeat tone for investors.

“US consumer confidence went to a one-year low and European sovereign debt concerns flared up, which dragged the kiwi lower,” said Mike Jones, strategist at Bank of New Zealand.

“The kiwi will probably struggle this week, and is staring down the barrel of more uninspiring economic data.”

The kiwi dropped to 72.58 US cents from 73.22 cents on Friday in New York and fell to 66.91 on the trade-weighted index of major trading partners’ currencies from 67.15.

It declined to 62.21 yen from 62.81 yen last week, and rose to 77.50 Australian cents from 77.32 cents. It was little changed at 55.60 euro cents from 55.67 cents, and slipped to 46.44 pence from 46.58 pence.

Jones said the currency may trade between 72.10 US cents and 73.10 cents today, with the major risks coming later in the week in the form of New Zealand’s second-quarter gross domestic product and balance of payments and the US Federal Open Market Committee meeting.

The BNZ-Business NZ performance of services indicator is expected to show service industries are still struggling, while the ANZ Roy Morgan Consumer Confidence will likely indicate people are still unwilling to ramp up their spending as the economic remains subdued.

Reserve Bank of Australia Governor Glenn Stevens will deliver a speech in Victoria entitled ‘Monetary Policy and the Regions’, and is unlikely to indicate any change in his stance. Markets are giving a rate hike in October a one-in-four chance when the RBA meets next month.

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