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NZ dollar falls vs. euro after German ruling, RBNZ awaited

Thursday 13th September 2012

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The New Zealand dollar weakened against the euro after a German court paved the way for the creation of a European Union bailout fund and as traders await Reserve Bank governor Alan Bollard's final monetary policy statement before he steps down.

The New Zealand dollar fell to 63.38 euro cents from 63.72 cents at 5pm in Wellington yesterday. The kiwi traded at 81.94 US cents, down from 82.01 cents.

Germany's Federal Constitutional Court overnight backed earlier today to back the country's ratification of the 500 billion-euro rescue fund for the euro zone as well as a budget pact championed by Chancellor Angela Merkel, helping stocks to rise in Europe and the US. Investors are awaiting the outcome of the Federal Reserve's latest policy meeting while Bollard is expected to keep interest rates unchanged at home and may give a dovish assessment of economic conditions.

"Bollard will be a lot more dovish than what he has been, giving the incoming governor the ability to go either way," said Alex Sinton, senior dealer at ANZ New Zealand. "It's a global struggle out there."

Bollard steps down when his second five-year term expires on Sept. 25 and will be replaced by former World Bank executive Graeme Wheeler. ANZ Bank doesn't expect the Reserve Bank to list the official cash rate from a record low 2.5 percent until 2014, while economists at other lenders are tipping June 2013.

Bets are that the Federal Reserve will announce a third round of asset purchases as well as extend a pledge to keep interest rates at record low levels, though with much expectations of that outcome built in already, the outcome could "disappoint markets," Sinton said.

The trade-weighted index slipped to 72.77 from 72.85 late yesterday. The New Zealand dollar was little changed at 78.26 Australian cents and fell to 50.86 British pence from 51 pence.

BusinessDesk.co.nz



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