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NZ dollar falls after weak Spanish bond sale

Thursday 5th April 2012

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The New Zealand dollar fell after weak demand at a Spanish bond auction caused stocks on Wall Street to fall, reigniting fears the region’s sovereign-debt crisis is far from over.

The New Zealand dollar fell to 81.40 US cents at 8am from 81.60 cents yesterday at 5pm. The trade weighted index fell to 72.98 from 73.10.

Tepid demand at a Spanish government bond auction spooked investors who had been upbeat about global growth prospects and sparked a sell-off in higher-yielding, or risker, assets. Spain sold a total of 2.59 billion euros of debt out of a maximum target of 3.5 billion euros. The yield on the five-year note rose to an average 4.32 percent from 3.38 percent in a sale on March 1.

Wall Street’s Standard & Poor’s 500 Index is heading for its second-biggest decline this year, falling 0.9 percent to 1400.28, while the Dow Jones Industrial Average declined 0.9 percent to 13,074.75.

“European sovereign debt jitters are starting to flare up again,” said Mike Jones, market strategist at Bank of New Zealand. “Reflecting the negative risk sentiment, the safe-haven US dollar and Japanese Yen strengthened against all of the major currencies,” pushing the kiwi dollar down, he said.

Spain’s bond sale is the first since Budget Minister Cristobal Montoro presented the government’s 2012 spending plan in March. Public debt is expected to rise to 79.8 percent of gross domestic product, the highest since about 1980, even as the government makes its biggest budget cuts in three decades.

In the US, ADP's private-sector jobs data showed American employers added 209,000 jobs in March, continuing the recent trend of a pickup in the labour market. Investors are looking to the release of non-farms payrolls on Friday to see if the world’s largest economy continues to show signs of a sustained recovery. Economists predict the US economy added 203,000 jobs last month.

A short week will see the majority of financial markets closed on Friday for Easter. A number of markets will remain closed on Monday, enjoying a four-day weekend, though the US will be open for business.

The New Zealand dollar rose to 61.92 euro cents from 61.80 cents yesterday. It fell to 79.33 Australian cents from 79.45 cents and slipped to 51.20 British pence from 51.33 pence. The kiwi declined to 67.07 yen from 67.50 yen.

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