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NZ dollar gains to 80 US cents as Bernanke sees slow EU progress

Thursday 19th July 2012

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The New Zealand dollar rose against the greenback and returned to record levels versus the euro after Federal Reserve chairman Ben Bernanke told the US House that Europe isn't close to a long-term solution to its debt crisis and left markets pondering the prospects for more quantitative easing.

The kiwi dollar climbed to 79.99 US cents, and earlier reached as high as 80.06 cents, from 79.63 cents at 5pm in Wellington yesterday. The local dollar rose to 65.12 euro cents, and earlier reached a record 65.25 cents, from 64.80 cents yesterday.

Bernanke said the Fed would follow a similar pattern to previous times when it has provided stimulus to the economy then "pulled back, took away the punch bowl" when growth returned. He was speaking as the Fed released its Beige Book business survey, which said the world's biggest economy grew at a "modest to moderate" pace in June and early July. Helping lift sentiment, US housing starts rose 6.9 percent last month.

"Bernanke is a master at developing a credible threat before delivering," said Peter Cavanaugh, senior client adviser at Bancorp Treasury Services.

The Australian and New Zealand dollars are underpinned by trade ties to China and their relatively high yields, though the kiwi may struggle to gain much more from 80 US cents, he said. Stocks gained in the US as earnings season delivered more results that beat estimates

Investors will be watching the results of government bond sales in Europe through the end of the week. An auction of German bunds due in 2014 drew a negative yield for the first time as the nation allotted 4.17 billion euros of the debt at an average rate of minus 0.06 percent at today's sale, according to Bloomberg.

The trade weighted index rose to 72.31 from 72.15. The kiwi rose to 51.08 British pence from 50.86 pence yesterday and edged up to 62.97 yen from 62.91 yen. The kiwi fell to 77.11 Australian cents from 77.21 cents.

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