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NZ dollar falls as talk of China tightening weighs on commodities

Wednesday 17th November 2010

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The New Zealand dollar fell against the US dollar after reports that China is looking to tighten its policy on commodity speculation and ongoing concerns around the Euro zone debt crisis saw equity markets tumble.

Global equity markets fell yesterday after reports that China would soon implement food price controls and limits on commodity speculation to rein in inflation caused the Shanghai Composite index fall nearly 4%. Commodity prices fell as a result which dulled demand for commodity linked currencies such as the kiwi and Australian dollar. In Europe, ongoing concerns that Ireland’s sovereign debt woes will spread to other heavily indebted countries in the Euro-zone saw investors collapse their holdings in the euro in favour of safe haven currencies, which saw the US dollar rise.

"Everything got sold against the US dollar last night," said Imre Speizer, markets strategist for Westpac. "The Euro zone continues to be a problem, which has increased the appeal of safe havens."

The kiwi fell to 76.79 US cents from 77.08 cents late yesterday, and rose to 69.14 on the trade-weighted index of major trading partners’ currencies from 69.07. It rose against the Australian dollar to 78.61 Australian cents from 78.44 cents yesterday, and fell to 64.01 yen from 64.02 yen. It rose to 56.92 euro cents from 56.71 cents yesterday, and advanced to 48.34 pence from 48.04. pence.

The greenback was further supported by a member of the US Federal reserve saying it may use all of the $600 billion quantitative easing if the economic data continues to stabilise in the US The comment was later watered down, but Speizer said the market saw it as a positive indication for the US economy.

"The prospect of cutting QE2 spending on better data means less dollar displacement, which indicates the US is a good place to be right now," said Speizer.

He said the kiwi may trade between 76.40 US cents and 77.80 cent today.

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