NZ dollar holds near 3-year high versus euro on dim Europe outlook

Thursday 13th May 2010

The New Zealand dollar held near a three-year high against the euro amid concerns the region’s 750 billion euro bailout fund won’t fix underlying fiscal problems and economic growth will remain subdued.

Gross domestic product in the euro-zone rose 0.2% in the first quarter, according to the European Union’s statistics office, while Bank of England Governor Mervyn King said risks to UK economic growth have increased, adding to pressure on the new coalition government to tackle the fiscal deficit. Fears of subdued growth in Europe helped offset better news out of two of the so-called PIGS (Portugal, Ireland, Greece and Spain), with Spain voluntarily cutting public service wages and Portugal finding support for a 1 billion euro sale of 10-year bonds.

“There was finally some good news in Europe from the likes of Spain’s austerity measures and Portugal issuing a bond with decent demand, but people are still a little bit nervous about the Euro-zone,” said Mike Jones, strategist at Bank of New Zealand. “The kiwi and the Aussie are again off the radar, and are trading in line with investor sentiment,” he said, referring to the trans-Tasman currencies colloquially.

The kiwi fell to 71.28 US cents from 71.86 cents yesterday, and dropped to 68.03 on the trade-weighted index of major trading partners’ currencies from 68.35. It declined to 66.37 yen from 66.71 yen yesterday, and decreased to 79.80 Australian cents from 80.15 cents. It slipped to 56.48 euro cents from 56.89 cents, and was little changed at 48.08 pence from 48.12 pence.

Tim Kelleher, vice president at Commonwealth Bank of Australia, said the currency may trade between 71 US cents and 71.50 cents today, with little on the horizon until next week’s budget.

Britain’s new government announced it would cut 6 billion pounds from back office public services over the next financial year, and Bank of England Governor Mervyn King endorsed the plan, calling it “strong and powerful.”

The BoE’s inflation report showed the U.K.’s inflation is expected to reach 1.4% in two years.

Businesswire.co.nz

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