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New Zealand dollar holds above 76 US cts ahead of European rate decisions

Thursday 6th October 2011

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The New Zealand dollar held above 76 U.S. cents and is expected to settle near current levels today ahead of interest rate decisions in Europe overnight.

The kiwi rose to 76.49 U.S. cents at 8am from 76.03 cents at 5pm yesterday, but off its peak of 76.64 cents in Northern Hemisphere trading.

The Bank of England is due to pronounce on rates at midnight New Zealand time and 45 minutes later the European Central Bank sets its rate.

ECB President Jean-Claude Trichet’s press conference in the wake of that decision will be a big event for markets. Most analysts expect the ECB to keep rates on hold but some expect it to cut its benchmark rate to 1.25% from 1.5%.

"Barring any more headlines out of Europe, the kiwi dollar should stay in a pretty narrow range up until key events in Europe tonight," Mike Burrowes, market strategist at Bank of New Zealand said.

The currency shot higher yesterday when stock markets surged after a Financial Times article reported European Economic and Monetary Affairs Commissioner Olli Rehn as saying "there is an increasingly shared view that we need a concerted, co-ordinated approach in Europe".

That’s bolstered appetite for U.S. equities and the Standard & Poor’s 500 Index was heading for a second day of gains.

Worries about contagion from the European sovereign debt crisis had precipitated a market dive of more than 20%, which is seen as a threshold for a so-called bear market. Still, the restoration of confidence for now has allowed analysts to talk about the attractiveness of stock prices.

Investor sentiment was lifted by German Chancellor Angela Merkel saying she was willing to act quickly to recapitalise Europe's banking sector, as well as an Institute for Supply Management report and report from payrolls processor ADP in the U.S., ahead of Friday’s non-farm payrolls data.

Yesterday, Imre Speizer, market strategist at Westpac Banking Corp. said the kiwi may bounce to between 77 U.S. cents to 79 cents during the next few days.

The kiwi eased to 79.33 Australian cents from 79.67 cents at 5pm yesterday and rose to 58.69 yen from 58.28 yen yesterday. It was little changed at 57.29 euro cents from 57.20 cents yesterday.

It rose to 68.55 on the trade-weighted index from 68.34 yesterday and was at 49.44 British pence from 49.44 pence yesterday.

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