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NZ dollar tumbles after Italy pays high price to borrow

Tuesday 15th November 2011

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The New Zealand dollar tumbled almost 1 US cent after Italy was forced to pay the highest yield since 1997 on government bonds, renewing fears that Europe has a way to go to contain its debt crisis.

The kiwi dollar was at 77.86 US cents just after 8am, down from 78.78 US cents at 5pm yesterday.

The Italian Treasury sold 3 billion euros of five-year bonds at a yield of 6.29 percent, the highest since mid 1997 and a level seen as unsustainable for a nation nursing US$2.6 trillion of debt.

Equity markets sold off after the sale results were announced, with the Standard & Poor’s 500 Index declining 1.2 percent.

Both Italy and Greece are installing unity governments to push through austerity measures aimed at preventing default, which could ultimately weight on global growth.

"Reality is starting to set in that we are not through the woods yet" with Europe's sovereign debt crisis, said Dan Bell senior currency strategists at HiFX.

With no domestic data due for release, the kiwi dollar is likely to take its lead from offshore developments today, he said.

Some $8.78 billion of New Zealand government bonds mature today. The AA+ rated bonds were issued in 1999 and paid a coupon of 6 percent.

The kiwi was down against most major trading partners from 76.37 Australian cents to 76.43 yesterday and 59.98 yen from 60.74 yen. It was at 57.13 euro cents from 57.18 cents and 48.94 British pence from 49 pence yesterday.

The trade weighted index was at 68.48, down from 68.89 yesterday.

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