NZ dollar falls ahead of Merkel, Sarkozy meeting to shore up euro deal

Monday 5th December 2011

The New Zealand dollar declined ahead of a meeting between Europe’s power brokers to lay the groundwork for a deal to rein in Europe's burgeoning sovereign debt.

The kiwi dollar was little changed at 77.76 US cents at 5pm from 77.85 cents just after 8am, and was down from 77.97 cents in late New York trading on Friday.

German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet today in Paris in a bid reach agreement on what working proposals they will put to the European Union leaders’ summit this week to prevent a break-up of the trading bloc.

The region’s two biggest economies are reportedly at odds over the role of the European Central Bank, and any agreement will probably hinge on closer economic integration in the Euro-zone in exchange for a quantitative easing programme where the central bank would buy government debt.

Quantitative easing “would stabilise things, but it’s dependent on how it all plays out,” said Mike Burrowes, currency strategist at Bank of New Zealand. “The kiwi is basically unchanged after last week’s coordinated central bank action” and has been trading in “a very tight range,” he said.

The attempt by European leaders to get their respective books in order comes ahead of a slew of central bank meetings in Europe, Australia, England and New Zealand.

Analysts predict Reserve Bank of New Zealand Governor Alan Bollard will keep the official cash rate at a record low 2.5 percent on Thursday, and push out the rising track of the 90-day bill to the second half of the year from March. The 90-day bill is often seen as a proxy for the OCR.

Burrowes said if the statement is “too dovish” and doesn’t indicate tighter monetary policy, “it could be interpreted that he’s not going to hike rates.”

The Reserve Bank of Australia will review its target cash rate tomorrow, and Governor Glenn Stevens is expected to cut the benchmark rate a quarter-point to 4.25 percent.

The kiwi dollar fell to 76.06 Australian cents from 76.36 on Friday and was little changed at 60.67 yen from 60.75 yen last week. It traded at 58.03 euro cents at 5pm from 58 cents on Friday in New York, and increased to 49.88 pence from 49.72 pence last week.

The trade weighted index was little changed at 68.90 from 69 last week.

BusinessDesk.co.nz

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