Sharechat Logo

NZ dollar jumps 2% to trade above 78 cts as central banks cut borrowing costs

Thursday 1st December 2011

Text too small?

The New Zealand dollar jumped more than 2 percent after the world’s largest central banks agreed to cut borrowing costs for European lenders in an effort to contain the region’s escalating debt crisis.

The New Zealand dollar rose to 78.22 US cents overnight, from 76.26 yesterday, and was recently at 77.91 cents.

The U.S Federal Reserve, the European Central Bank and their counterparts in Canada, Britain, Japan and Switzerland jointly agreed to cut interest rates on dollar liquidity swap lines by 50 basis points.

The move was designed to improve the availability of credit for businesses and households in Europe and will give participating banks easier access to euros, British pounds, Japanese yen, Swiss francs and Canadian dollars.

“There was a massive surge in risk appetite overnight” following the concerted central bank action, said Mike Burrowes, market strategist at Bank of New Zealand. “While the reaction overnight was dramatic, this action will not be the panacea to the world’s ills.”

Markets welcomed the initiative, the Dow Jones Industrial Average rose 3.3 percent, the Standard & Poor’s 500 Index climbed 3.4 percent, while the Nasdaq Composite Index rose 3.3 percent. In Europe, the Stoxx 600 Index finished the session with a 3.6 percent gain. The euro also benefited, rising 1 percent to $1.35.

Burrows said it is still a risk on, risk off environment. “There will be another realisation from markets that it doesn’t change anything”- Europe’s debt fears will continue, he said.

The New Zealand Institute of Economic Research said in a report today that Europe’s crisis meant there is now a 25 percent chance that the euro region will be broken up and New Zealand firms should prepare for “another global financial crisis” if it happens.

The institute’s latest Quarterly Predictions, published today, say the weakening global economy will depress exports and tourism arrivals anyway, restricting growth to just 1.5 percent in 2012, with a slow recovery to 2.5 percent growth in 2013.

If the euro zone crisis plays out badly with a break-up of the euro, “New Zealand would likely experience another recession and the Reserve Bank would need to cut interest rates,” the institute said.

The Overseas Trade Indexes (volumes and prices) for the third quarter are due for release today, which will provide clues to the extent that Europe’s woes are denting global demand for New Zealand products.

The kiwi rose to 57.98 euro cents from 57.25 cents yesterday, it was at 49.62 British pence from 48.9 pence and rose to 60.35 yen from 59.4 yesterday. It fell to 75.93 Australian cents from 76.12 yesterday.

The trade weighted index rose to 68.84 from 67.95.

BusinessDesk.co.nz



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

NZ dollar gains on G20 preference for growth
NZ dollar dips as Wellington CBD checked for quake damage
NZ dollar gains, bolstered by RBA minutes, strong dairy prices
NZ dollar falls after central bank says it may scale up currency intervention
NZ dollar gains before CPI, helped by dairy gains, rally on Wall Street
NZ dollar trades little changed as US budget talks bear down on deadline
NZ dollar falls with equities on view US to sail over fiscal cliff
NZ dollar weakens as fiscal cliff looms, long bets unwind
NZ dollar sinks to three-week low as equities fall, fiscal talks in focus
NZ dollar slips as fiscal cliff talks grind slower in Washington