NZ dollar rises as signs of European debt crisis ease

Wednesday 16th June 2010

The New Zealand dollar rose after several successful government bond auctions in Europe helped ease concerns about the region’s sovereign debt crisis and stocks on Wall Street gained.

Some 9.2 billion euros was raised in bond sales by Ireland, Spain and Belgium, helping allay concerns that the region won’t be able to assuage fears of high levels of government debt, and stoking investor appetite for higher yields.

The Standard & Poor’s 500 index, with which the kiwi dollar has a strong correlation, rose 2.4% amid the improving fiscal outlook across the Atlantic, though investors largely ignored a very weak reading German’s Zew economic sentiment survey.

The euro climbed 0.7% to US$1.2328 as investors piled into so-called risk assets.

“The bond auctions helped” stoke demand for risk sensitive currencies though the market “has got too far one way” which leaves it open to a sharp snap back, said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia. “About 96% of the market is bearish on the euro - the news out of Europe is not good – the Zew survey was absolutely diabolical,” he said.

The kiwi rose to 69.84 US cents from 69.39 cents yesterday, and gained to 69.35 on the trade-weighted index of major trading partners’ currencies from 67.20. it increased to 63.86 yen from 63.43 yen yesterday, and slipped to 80.68 Australian cents from 80.90 cents. It declined to 56.57 euro cents from 56.66 cents, and edged up to 47.12 pence from 47.04 pence.

Kelleher said the currency may trade between 69.50 US cents and 70.25 cents today, and will probably head towards “something with a seven in front of it” as investors’ remain upbeat about the state of Europe. With little on the domestic front, the kiwi will follow offshore events and equity markets, he said.

Yesterday’s Real Estate Institute data showing the property market was still subdued last month helped keep the kiwi dollar under pressure against its trans-Tasman counterpart, Kelleher said, and he expects it will continue underperform the Australian dollar.

Businesswire.co.nz

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