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NZ dollar recovers as investors shun euro

Thursday 11th November 2010

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The New Zealand dollar recovered from its 1 cent slide yesterday as investors spurned the euro amid resurgent fears over the region’s sovereign debt.  

Investors wound down their euro holdings as Portugal was forced to pay higher yields on its auction of 1.2 billion euros worth of 10-year bonds, while LCH Clearnet, a London clearing house, raised the deposit clients will have to place when trading Irish government bonds. The kiwi sank yesterday after Reserve Bank of New Zealand Governor Alan Bollard said the currency’s strength was a threat to the economy rebalancing. Bollard’s comments were compounded by investor sentiment souring when China raised bank reserve requirements by 50 basis points ahead of today’s data dump, which includes the consumer price index.

“Sentiment towards the kiwi was shored up by solid buying of kiwi/euro and selling of the euro crosses as sovereign debt concerns reared their head,” said Mike Jones, strategist at Bank of New Zealand. “The New Zealand currency’s looking a little bit over-stretched at the minute” after Bollard’s jawboning indicated rates will stay low while the kiwi is strong, he said.

The kiwi rose to 78.21 US cents from 77.98 cents yesterday, and gained to 56.73 euro cents from 56.67 cents. It increased to 69.36 on the trade-weighted index of major trading partners’ currencies from 69.15 yesterday, and advanced to 77.85 Australian cents from 77.59 cents. It climbed to 64.34 yen from 63.80 yen yesterday, and slipped to 48.53 pence from 48.73 pence.

Jones said the currency may trade between 77.50 US cents and 79.20 cents today, with the Chinese data, monthly Australian employment figures and the Group of 20 nations summit in Korea the main event risks.

G-20 leaders meet in Seoul today and are expected to keep discussing the so-called ‘currency wars’, where nations compete to devalue their exchange rate in a bid to stoke exports. China has been under pressure from the US to appreciate its currency, and The People’s Bank of China revalued the yuan to its highest trading band since July 2005, setting the mid-point at 6.6450 per US dollar.

The New Zealand dollar rose to 5.1957 yuan from 5.1592 yesterday.

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