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NZ dollar gains versus euro on Greek debt, ECB's neutral stance

Friday 9th September 2011

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The New Zealand dollar gained against the euro and was little changed against the greenback after the European Central Bank indicated a pause in interest rate increases and fears swirled that Greece won't meet the conditions for its bailout.

The New Zealand dollar traded at 83.09 U.S. cents from 83.28 cents late yesterday. It climbed to 59.83 euro cents from 59.17 cents. The euro weakened below US$1.39 for the first time since March.

The euro weakened after ECB president Jean-Claude Trichet said the region faces "intensified downside risks" and the central bank kept its benchmark rate at 1.5%. Those risks include a default by Greece and market chatter that it could even be ejected from the euro. The Greek economy shrank 7.3% in the second quarter.

Financial markets also listened to a speech by Federal Reserve Chairman Ben Bernanke in which he reiterated his comments at Jackson Hole that the fed would do all it can to help a faltering U.S. economy, while offering no new ideas. Markets are now awaiting a keynote speech by U.S. President Barack Obama on how he intends to create jobs in the world's biggest economy.

"There's an ongoing focus back on Greece - can it meet the targets for bail funds," said Khoon Goh, head of market economics at ANZ New Zealand. With Obama's speech, there is a risk of disappointment, because there's no guarantee any measures he announces would make it through a hostile Congress, he said.

In New Zealand, government figures for electronic card transactions will give an insight whether a rise in consumer confidence is translating into increased spending.

Economists expect Reserve Bank Governor Alan Bollard will leave the official cash rate at 2.5% when he releases his quarterly Monetary Policy Statement next week, though he is likely to signal the 50 basis points of 'emergency' cuts he made in March need to be reversed soon.

Goh says he expects the kiwi to "continue to grind higher", with support at around 82.80 U.S. cents. The currency "is going to be hostage to what happens overseas."

The trade-weighted index was at 72.12 from 71.99 yesterday. The kiwi was little changed at 78.58 Australian cents, having surged yesterday when jobs data across the Tasman printed weaker than expected.

The kiwi traded at 64.39 yen from 64.41 yen yesterday and weakened to 52.03 British pence from 52.20 pence.


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