NZ dollar sets new record after US debt deal

NZPA

Monday 1st August 2011

The New Zealand dollar rose to a new post-float high after Congressional leaders reached an agreement on raising the United States debt limit.

Agencies reported that President Barack Obama said agreement had been reached on a deal which would see $US1 trillion in cuts initially, with a super congressional committee to find more savings to lift the federal borrowing limit beyond the 2012 election.

The NZ dollar rose to US88.39c in early afternoon trading, which is a new post-float high. At 8am it was buying US87.95c, after surging from US86.67c at 5pm on Friday. The NZ dollar also rose to 0.6133 euro by early afternoon from 0.6112 euro this morning and 0.6046 on Friday.

It was at A79.91c from A79.84c this morning and A78.97c on Friday.

Equity markets in Asia rose while gold and the yen dropped as investors cut safety trades after the last minute deal to escape a US default.

Investors were cautious though as the plan, which will be voted on in Congress on Monday US time (tomorrow, NZT), may not satisfy Standard & Poor's enough to keep the US triple-A debt rating.

New Zealand foreign exchange dealers said the NZ dollar had been strong when the US dollar was under pressure as talks continued on a debt deal. It continued to be strong when the deal was secured because equity markets rallied.

"It is positive to risk sentiment," Imre Speizer, strategist at Westpac said.

The dollar shot up to 78.00 yen, as the yen slid broadly as safe haven trades were closed out.

During the weekend, the US dollar fell to a record low against the Swiss franc and a four-month trough against the yen, both traditional safe-haven currencies, as weak data on US economic growth ignited fears the economy could slip into another recession.

Politicians in the US had continued to wrangle over a plan to cut American spending, raise the nation's borrowing limit and avert an unprecedented debt default, as party leaders continued to express optimism that an agreement would be reached.

BNZ currency strategist Mike Burrowes said the NZ dollar had been one of the best performers against the US dollar on Friday, trailing just behind the safe haven Swiss franc and the yen.

The NZ dollar had been propelled higher by strong flows from the leveraged and speculative community, mainly scrambling to cover short positions.

Other commodity-sensitive currencies, the Australian and Canadian dollars struggled as they were more affected by poor risk sentiment.

The trade weighted index rose to 75.13 from 73.91 on Friday.

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