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NZ dollar falls amid muted response to Greece's second bailout, Euro stocks decline

Wednesday 22nd February 2012

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The New Zealand dollar fell after investors responded half-heartedly to news Greece secured a second bailout package, avoiding default, as European stock markets declined.

The kiwi slipped to 83.55 US cents at 8am down from 83.74 cents yesterday at 5pm, having climbed as much as a cent after the Greek deal was announced. It fell to 63.03 euro cents from 63.17 cents and the trade-weighted index was little-changed at 73.7 from 73.77.

European Union finance ministers emerged from marathon thirteen hour talks to announce it would award 130 billion euros in aid to the debt-stricken nation. As part of the deal, Greece’s private bondholders agreed to wear a bigger loss on their debt.

European stock markets fell after the Greek deal was announced as investors start speculating the Mediterranean nation will struggle to deal with the long term challenges. Germany’s DAX fell 0.5 percent to 6908.18, France’s CAC dropped 0.2 percent to 3465.24, and England’s FTSE 100 declined 0.3 percent to 5928.2.

“It’s a two dimensional solution on paper what you need is three dimensional implementation,” said Alex Sinton, senior dealer at ANZ New Zealand. “The range for today is a somber quite range for the kiwi – if it can’t go higher it will go lower.”

Still, government bonds among the other heavily indebted European nations colloquially known as PIIGS (Portugal, Italy, Ireland, Greece and Spain) rallied. The yield on Italy's 10-year government bond fell four basis points to 5.44 percent, and Spain's equivalent dropped five basis points to 5.11 percent.

In New Zealand, traders are expecting a quiet day on the first anniversary of the Christchurch earthquake. The only data set for release is the Reserve Bank credit card statistics, balances of outstanding, limits and interest rates for January.

The minutes of the last Reserve Bank of Australia meeting were released yesterday, and suggested there’s scope for the target cash rate to stay on hold at 4.25 percent. The kiwi was little changed at 78.15 Australian cents from 78.18 cents yesterday.

The New Zealand dollar declined to 66.59 yen from 66.72 yen yesterday at 5pm, and was little changed at 52.90 pence from 52.82 pence.


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