NZ dollar sinks ahead of budget as German short-selling ban spooks markets

Thursday 20th May 2010

The New Zealand dollar sank to a nine-month low as Germany’s ban on ‘naked’ short-selling of certain equities spooked markets and sparked a sell-off in European and American share markets.

Germany’s decision to stop traders from taking short positions, where they bet an asset will fall, without having access to the securities sapped investors’ appetite for risk and pushed higher-yielding assets lower.

Rumours that Greece might leave the Euro-zone were scotched, but lent support to the euro and saw traders liquidate their long positions in the kiwi and Australian dollars.

The kiwi extended its weekly decline to 3.1%. The global gloom is likely to weigh heavily on the kiwi ahead of today’s budget, which is expected to show a pick-up in New Zealand’s fiscal outlook and allay any concerns that Europe’s debt crisis will spread to the South Pacific.

“The kiwi took a pounding, together with the Aussie, on the ongoing jitters over what the heck’s going on in the Euro-zone,” said Khoon Goh, senior markets economist at ANZ New Zealand. “There’s a heck of a lot of volatility, and a lot of people don’t have a lot of conviction on the moves (in the currency) – they’re trading off the headlines and ignoring the data.”

The kiwi fell as low 66.80 US cents from 67.69 cents yesterday and recently traded at 67.58 cents. It dropped to 65.56 on the trade-weighted index of major trading partners’ currencies from 66.04 yesterday, and was little changed at 61.89 yen from 61.88 yen. It declined to 79.94 Australian cents from 80.28 cents yesterday and decreased to 54.55 euro cents from 55.59 cents. It sank to 46.88 pence from 47.45 pence yesterday.

Goh said the currency may trade between 66.66 US cents and 67.96 cents today with the main focus on how Asian markets interpret the drama in Europe.

Still, today’s budget should be supportive of the currency as it shows a “better fiscal position” as New Zealand continues to stay ahead of the pack after the global recession of the past two years. “How many countries in the world are giving out tax cuts?” Goh said.

The Federal Open Market Committee’s minutes from this month’s meeting were released, and showed the Fed has upgraded its outlook for growth in the world’s largest economy and has begun looking at ways to reduce the size of its balance sheet.

Businesswire.co.nz

Comments from our readers

No comments yet