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NZ dollar gains as Europe agrees to 100 bln euro deal for Spanish banks

Monday 11th June 2012

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The New Zealand dollar gained more than half a US cent after European policymakers agreed to a 100 billion euro rescue package for Spain's struggling banks, stoking demand for high-yielding, or riskier, currencies such as the kiwi.

The kiwi rose to 77.53 US cents just before 8am from 76.95 cents at the close of trading in New York on Friday and 76.37 cents at the close of local trading on Friday. The trade-weighted index increased to 70.40 from 70.17.

Spain will become the fourth euro-zone nation to receive a financial bailout after European Union finance ministers agreed to shore up the nation's banking sector following an emergency conference call over the weekend. Leaders didn't make clear whether the loans would come from the region's permanent support fund, the European Stability Mechanism or its temporary European Financial Stability Fund. The EU and IMF have now committed half a trillion euros in euro-zone bailouts.

"There has been a temporary reprieve to the kiwi - but we are still underpinned by events in Europe," said Stuart Ive, currency strategist at HiFX. "Markets see the bailout as a positive since it has lessened the contagion - there is a 100 billion euro ring fence around these banks ahead of what is likely to be a closely watched and unpredictable Greek election."

The Spanish rescue package comes ahead of Greece's second round of elections on June 17. The result will be closely watched by markets in the event Greek voters elect a government that decides to quit the region's single currency. Greece has already received two financial rescues, while Ireland and Portugal have also needed financial assistance from the EU.

In China, New Zealand's second largest export market, local data wasn't as bad as investors had feared with the consumer price index easing to 3 percent from 3.4 percent. On Friday the People's Bank of China unexpectedly cut interest rates to 0.25 percent to help stimulate the economy its economy. That's the first time the bank has cut rates since 2008.

In New Zealand, the economic survey of manufacturing for the March quarter is set for release by Statistics New Zealand this morning.

The New Zealand dollar slipped to 61.36 euro cents at 8am from 61.48 cents at the close of trading in New York on Friday. The kiwi rose to 50.04 British pence from 49.74 pence and increased to 77.73 Australian cents from 77.58 cents. It climbed to 61.78 yen from 61.16 yen.

BusinessDesk.co.nz



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