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NZ dollar slips on Euro debt fears

Tuesday 9th November 2010

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The New Zealand dollar slipped below 79 US cents as amid resurgent fears about the state of Europe’s sovereign debt.  

The spreads on Irish 10-year bonds over German bunds moved to a fresh record of 550 basis points amid increasing concerns over Ireland’s ability to repay its debt holders. Ireland’s problems are hanging over Spain and Portugal, which are all part of the so-called PIIGS, as the threat of contagion increases. Weighing on the New Zealand dollar was news of a bacterial disease being discovered in North Island kiwifruit vines. Kiwifruit makes up $1 billion of New Zealand’s exports.

“There certainly were worries on the Euro-zone front, and the kiwi was overextended at 79 (US cents),” said Alex Sinton, senior dealer at ANZ New Zealand. “The kiwi corrected back on the US and Australian crosses” and will “weaken further against the Australian dollar” as the trans-Tasman economies continue to diverge, he said.

The kiwi slipped to 78.81 US cents from 78.98 cents yesterday, and declined to 77.73 Australian cents from 78.05 cents. It fell to 69.42 on the trade-weighted index of major trading partners’ currencies from 69.53 yesterday, and decreased to 64.00 yen from 64.17 yen. It dropped to 56.54 euro cents from 56.65 cents yesterday, and was down to 46.85 pence from 48.95 pence.

Sinton said the currency may trade between 78.40 US cents and 79 cents today, as it looks to break below 78.20 cents, a significant technical level, in the coming week.

Local data showing consumer spending on electronic cards last month is expected to come in a little stronger, with higher consumption tax and lower personal taxes showing up in the statistics.

Investors are waiting for the Group of 20 Nations summit in South Korea on Thursday and Friday, with more discussion on foreign exchange expected. Major nations have been engaged in what’s been dubbed a ‘currency war’ where countries compete to devalue their exchange rate in an effort to stoke exports.

US Treasury Secretary Tim Geithner told an audience in New Delhi he was “very confident” an agreement can be reached, though he also used the opportunity to press for an appreciation in the value of China’s yuan.

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