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NZ dollar gains as OCR statement less gloomy than feared

Thursday 27th October 2011

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The New Zealand dollar rose after the Reserve Bank left the official cash rate unchanged at 2.5 percent on relief that the central bank did not paint a bleaker picture of the economy.

The kiwi dollar was at 79.75 U.S. cents, up from 79.46 cents just before the decision and from 79.51 U.S. cents at 8am. It was 79.57 US cents at 5pm yesterday. The kiwi fell from 79.84 cents to 79.20 cents between 3am and 5am, reflecting moves in the euro at that time.

"It was pretty much a cut and paste from the September statement," said Imre Speizer, market strategist at Westpac. The market had priced in a worse scenario so the currency was responding to this.

Bollard said there was “a real risk that the European sovereign debt crisis could cause a further slowing in global activity, putting downward pressure on New Zealand’s commodity export prices.”

The kiwi had risen close to 80 U.S. cents when the euro was weak but the euro turned around, said Alex Sinton, senior deal at ANZ New Zealand said before the RBNZ move. As the New Zealand trading day geared up a deal at the European summit on Wednesday evening European time was uncertain.

US stocks gained after a report by AFP that China has agreed to invest in Europe's bailout fund but Bloomberg reported that talks with banks on bondholder losses as part of a second Greek bailout were deadlocked.

German Chancellor Angela Merkel also continued to manage expectations lower.

Sinton said a lot also depended on the political situation in Italy. A soft consumer price index figure on Tuesday quashed fears inflation was creeping into the economy.

Bollard was forced to hold off removing the extra stimulus he added in March in response to the Christchurch earthquake after global financial markets slumped amid heightened fears of a second worldwide recession.

The kiwi rose to 76.79 Australian cents from 76.38 cents before the OCR review and 76.51 76.78 cents yesterday.

The trade weighted index rose to 69.43 from 69 before the OCR review.

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