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Reserve Bank says NZ dollar will struggle to gain amid global market uncertainty

Thursday 10th November 2011

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The New Zealand dollar, which has fallen to a month-low, will struggle to make gains amid current global financial market uncertainty, says Reserve Bank deputy governor Grant Spencer.

“We don’t expect to see a lot of strength in the currency in the near term” given the risk-off sentiment in global markets, Spencer told reporters after the release of the financial stability report.

The kiwi dollar recently traded at 78.15 U.S. cents, having tumbled more than 1 US cent as investors spurned risky assets when a spike higher in Italian bond yields triggered a sell-off in US equities.

The stability report noted that carry trades, where investors borrow cheaply in one currency to buy those that offer a higher yield, have become less attractive and the cost of insuring against kiwi dollar depreciation has increased.

That suggests the perceived probability of a sharp depreciation in the currency has increased, the report said.

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