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NZ dollar falls almost 1 cent on Bernanke's comments; ECB lending

Thursday 1st March 2012

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The New Zealand dollar fell almost 1 US cent following bearish marks on the US economy from Federal Reserve Chairman Ben Bernanke and after the European Central Bank loaned a record amount of cash to euro-area banks.

The New Zealand dollar fell as low as 83.79 US cents, having reached as high as 84.70 cents before Bernanke spoke and is down from 84.17 US cents yesterday at 5pm.

Bernanke said in Washington that US employment “remains far from normal” and stronger growth would be needed to bring down the jobless rate – comments that tempered market enthusiasm over recent strong US economic data. Meantime in Europe, the ECB lent a record 529.5 billion euros of three-year loans to 800 financial institutions, up from 523 at the first round of lending in December. Investors are wary banks will become too reliant on ECB funds and fail to take the steps to strengthen their balance sheets.

“The hangover has started with the European Central Bank’s long term refinancing operation,” said Alex Sinton. “It has been quite a wild ride this morning - a night partying for the New Zealand dollar may well see support levels tested today.”

Sinton said, the kiwi has already passed through its initial support level of 83.90 US cents, with the potential to move as low as 83.40 cents.

“There is still underlying demand for the kiwi - relatively speaking we are still attractive,” he said.

In the US, Bernanke indicated the Fed is prepared to wait before taking any additional easing action. The comments offset better-than-expected economic data, with the Commerce Department lifting its growth estimate for the final three months of 2011, to 3 percent from 2.8 percent.

The Institute for Supply Management-Chicago's business barometer rose to a 10-month high of 64 in February.

In China, the Performance Manufacturing Index is set for release this afternoon.

In New Zealand, overseas Trade Indexes (Volumes and Prices) for the December quarter are set for release this morning.

The New Zealand dollar rose to 62.84 euro cents from 64.22 cents yesterday at 5pm. The kiwi advanced to 67.98 yen from 67.71 yen. It fell to 52.61 British pence from 52.82 pence. It was little-changed on 77.86 Australian cents from 77.85 cents.

The trade-weighted index rose to 73.85 from 73.78.


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