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NZ dollar pares gains as Europe fears linger, Iceland downgraded

Wednesday 31st March 2010

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The New Zealand dollar pared gains as Greece struggled to sell government bonds, renewing concern about the flow-on effects for Europe, while Iceland’s credit rating was downgraded.  

The kiwi dollar pushed above 71 US cents after data showed US consumer confidence posted a stronger-than-expected reading and stoked demand for higher yields. Sentiment deteriorated as Greece struggled to sell 12-year bonds at auction, in spite of this week’s bail-out package. Eroding optimism further was rating agency Standard & Poor’s decision to downgrade Iceland to a BBB rating with a negative outlook, and stocks in Europe closed lower. Traders are awaiting Australian retail sales data and the National Bank Business Outlook today. 

“The Europe stuff took the sheen off more positivity in the air,” said Imre Speizer, market strategist at Westpac Banking Corp. “With fairly neutral offshore influences, the kiwi is going to be all about trans-Tasman data.” 

The kiwi slipped to 70.97 U.S. cents from 71.19 cents yesterday, and edged down to 66.07 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 77.09. It edged up to 65.87 from 65.78 yen yesterday, and declined to 77.22 Australian cents from 77.32 cents. It rose to 52.91 euro cents from 52.74 cents yesterday, and fell to 47.09 pence from 47.20 pence.  Speizer said the currency may trade between 70.40 U.S. cents and 71.30 cents today.  

“We see the local environment as being not as bad as some of the pundits are making out,” he said.  The Reserve Bank of Australia will review its target cash rate next week and investors are expecting another rate hike from Governor Glenn Stevens.

Earlier this week, Stevens had indicated his displeasure at rising house prices and said he was not in favour of hiking rates all at once. Markets expect the RBA will lift interest rates by 128 basis points over the next 12 months, according to the3 Overnight Index Swap curve.

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