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NZ dollar falls as euro-zone data, political ructions erode risk appetite

Tuesday 24th April 2012

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The New Zealand dollar fell after weaker euro-zone manufacturing and services data and a collapse in Dutch budget talks sapped investors’ risk appetite. Stocks fell in Europe and the US.

The kiwi dollar fell to 81.32 US cents from 81.54 cents at 5 pm yesterday. The currency dropped as low as 80.87 cents. The trade-weighted index declined to 72.56 from 72.73.

Concerns about Europe have returned to the fore. Netherlands Prime Minister Mark Rutte threatened to resign, forcing early elections after talks failed with the Freedom Party over budget cuts. Markit Economics’ composite index of manufacturing and services fell deeper into contraction, while Spain’s economy was confirmed to be in recession by its central bank. Germany’s DAX 30 dropped 3.4 percent and on Wall Street, the Standard & Poor’s 500 Index was down 0.8 percent.

“Creeping nervousness about Europe has undermined risk appetite over the past 24 hours,” said Bank of New Zealand strategist Mike Jones. “The deterioration in confidence has seen investors shun ‘growth-sensitive’ currencies,” such as the kiwi and Australian dollars.

Traders are awaiting inflation data from Australia, New Zealand’s biggest trading partner, for clues to the Reserve Bank of Australia’s next move on interest rates. Economists expect that the consumer price index rose 0.6 percent in the first quarter, tame enough not to stand in the way of the central bank cutting its cash rate from 4.25 percent on May 1.

A rate cut in Australia would lift the relative appeal of the kiwi dollar by narrowing the interest rate gap between the two nations. The New Zealand dollar recently traded at 78.86 Australian cents from 78.80 cents late yesterday and up from 76.03 cents at the start of the year.

Locally, March migration and visitor numbers are due out today, as is the Reserve Bank’s credit card statistics.

The kiwi dollar traded at 61.83 euro cents from 61.79 cents late yesterday. It dropped to 66.06 yen from 66.41 yen and traded at 50.42 British pence from 50.56 pence.


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