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NZ dollar holds below US71c as local business confidence falters

Tuesday 29th June 2010

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The New Zealand dollar held below US71c after data showed local firms’ outlook for the future dimmed, while the euro came under pressure amid an upbeat assessment of Switzerland’s exports by the country’s central bank.  

New Zealand businesses’ optimism about the country’s economic future faded over the past two months as deteriorating global sentiment affected the local outlook, according to the National Bank Business Outlook, denting support for the kiwi dollar.

Further weighing on the currency was the weakness in the euro after Jean-Pierre Danthine, a board member of the Swiss National Bank, said exports from Switzerland, which does not use the euro, proved resilient despite a strong Swiss franc. The country’s deflationary risks had disappeared, he said.

News that European banks may face a liquidity shortfall as they repay some 442 billion euro in loans to the European Central Bank also caused investors to shy away from risk-sensitive currencies.

Danthine’s comments and the European banks’ repayments to the ECB come against a backdrop of "ongoing European sovereign issues, which is a constant theme,” said Khoon Goh, senior markets economist at ANZ New Zealand. “The kiwi had a decent run up, but it’s now at a level where people are uncomfortable to push it higher.”

The kiwi was little changed at 70.87 US cents and rose to 57.75 euro cents from 57.32 cents. It increased to 68.03 on the trade-weighted index of major trading partners’ currencies from 67.87 yesterday, and edged up to 63.35 yen from 63.32 yen. It rose to 81.28 Australian cents from 81.14 cents yesterday, and fell to 46.90 pence from 47.11 pence.

Goh said the currency may trade between 70.30 US cents and 71.10 cents today and will take its cues from Asian equity markets.

Stocks in Europe gained, led by financial stocks, after the Group of 20 nations axed a global bank levy and pared back the timetable for new capital requirements. Wall Street edged lower as fears resurfaced about the strength of America’s economic recovery, and US bond yields fell. US 10-year Treasuries fell 8.7 basis points to 3.021%, a 14-month low.

Local building consents data out today is expected to show the number of residential permits increased last month from April, though ANZ’s Goh said it probably won’t move the currency. The housing market has struggled this year after the government flagged it was clamping down on its tax treatment on property.

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