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NZ dollar falls as European concerns flare up

Friday 4th June 2010

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June 4 (BusinessWire) – The New Zealand dollar declined as concerns in Europe flared up and the region’s banks piled a record amount of cash in the European Central Bank’s ultra-safe overnight deposits amid concern the financial system is still struggling with its sovereign debt crisis.

Europe’s banks put a record 320 billion euros in the ECB facility, which pays a sub-par rate of 0.25%, raising concerns about the health of the region’s financial system.  

The Hungarian forint weakened 3.8% to 231.80 per US dollar after its new deputy Prime Minister Lajos Kosa said the country has a slim chance of avoiding Greece’s fiscal fate.  

Traders are waiting for US non-farm payrolls data which is expected to show the world’s biggest economy added 533,000 jobs last month. If the labour data beats expectations, Federal Reserve chairman Ben Bernanke will come under more pressure to start lifting interest rates earlier than anticipated. 

“The overnight deposit stuff really raised some eyebrows” because banks can get a much better return on the open market, said Tim Kelleher, vice president of institutional banking and market at Commonwealth Bank of Australia.

“The kiwi’s just washing around at the moment – it’s got good support at 67 US cents.” 

The kiwi dropped to 68.30 US cents from 68.80 cents yesterday, and declined to 66.74 on the trade-weighted index of major trading partners’ currencies from 66.85.

It slipped to 63.29 yen from 63.74 yen yesterday, and rose to 80.97 Australian cents from 80.87 cents. It climbed to 56.19 euro cents from 55.98 cents yesterday, and decreased to 46.77 pence from 46.83 pence.  

Kelleher said the currency may trade between 68.25 US cents and 68.75 cents today as it mills around ahead of the American labour data.

Next Thursday's Reserve Bank of New Zealand monetary policy statement will be the next domestic event with capacity to shift the kiwi significantly, he said.  

RBNZ governor Alan Bollard “could do what the Bank of Canada did – it said it would hike rates, like Bollard has, and did so, but has given no hint about any more increases this year,” Kelleher said.  

Traders are betting Bollard will lift the official cash rate 161 basis points over the coming 12 months, according to the Overnight Interest Swap curve, and markets are pricing in an 80% chance of a rate hike next week.  

Support for the kiwi dollar was underpinned yesterday after investment bank Nomura Holdings announced a couple of uridashi bond issuances in New Zealand and Australia yesterday, worth $280 million locally, and A$1 billion across the Tasman.  

Businesswire.co.nz



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