NZ dollar gains vs. euro on divided Italian parliament, tumbles vs. yen

Tuesday 26th February 2013

The New Zealand dollar rose against the euro on signs of a hung parliament in Italy and tumbled against the yen as Japan's currency broadly recovered from a sell-off sparked by speculation over the next Bank of Japan governor.

The kiwi dollar rose to 63.81 euro cents from 63.40 cents at 5pm in Wellington yesterday and sank to 77.77 yen from 78.65 yen. The local currency traded little changed at 83.62 US cents.

Polls indicate that Italian elections may have left the euro-zone's third-largest economy with a split parliament, with Pier Luigi Bersani's centre-left coalition taking control of the lower house and former prime minister Silvio Berlusconi's party taking the senate, a combination that could derail the nation's austerity measures. The euro sank to a six-week low against the greenback.

"The weak euro is a straight function of a hung parliament in Italy," said Tim Kelleher, head of institutional FX sales at ASB Institutional. The yen's rebound may be a case of "buy the rumour sell the fact" on talk that Haruhiko Kuroda, who favours more monetary stimulus, will be named Bank of Japan governor.

Kuroda, currently president of the Asian Development Bank, told Bloomberg this month that the BOJ had "substantial room" for further loosening of monetary policy, which would help drive down its currency.

"We're probably in for some further weakness" in the yen, Kelleher said.

Traders will be focusing on the Reserve Bank's Survey of Expectations today for a reading on the outlook for inflation and economic growth.

The trade-weighted index was at 76.54 from 76.57. It kiwi was little changed at 55.20 British pence from 55.26 pence and traded at 81.38 Australian cents from 81.34 cents.

BusinessDesk.co.nz

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