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NZ dollar gains as ECB's Draghi sets bond buying programme

Friday 7th September 2012

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The New Zealand dollar rose after European Central Bank President Mario Draghi announced a bond-purchase plan to cap borrowing costs in the area's most-indebted nations, stoking optimism the region will get through its sovereign debt crisis and pushing stock markets higher.

The New Zealand dollar rose to 80.10 US cents at 8am in Wellington up from 79.56 cents yesterday at 5pm. The trade weighted index increased to 72 from 71.62.

Draghi kept his pledge to do "whatever it takes" to safeguard the euro as policymakers agreed on an unlimited debt-buying programme, targeting government bonds with a maturity of one to three years. Conditions of the agreement are yet to be finalised.

Stock markets on both sides of the Atlantic rallied on the news. German's DAC 30 climbed 2.9 percent, while Wall Street's Standard & Poor's 500 Index rose 1.9 percent and the Dow Jones Industrial Index gained 1.8 percent.

"Given the reaction in equity markets we would be looking at a positive day following through to risk currencies," such as the New Zealand dollar, said Tim Kelleher, head of institutional FX sales NZ ASB Institutional. "Certainly the initial reaction from Europe has been good - there are conditions attached to anyone who wants a bailout though."

The New Zealand rose to 63.35 euro cents from 63.13 cents.

Underpinning the mood was favourable data out of the world's largest economy, the US. Jobless claims fell 12,000 to 365,000 in the week ended Sept. 1, according to Labor Department data. That comes ahead of Friday's nonfarm payrolls report which is expected to show 125,000 jobs were added in August, down from 163,000 in July.

Investors will be looking to see whether the data is weak enough to spur the Federal Reserve into announcing a third round of asset purchases.

"If you start seeing better employment data the Fed won't do QE3," Kelleher said.

New Zealand's wholesale trade survey for June from Statistics New Zealand will be released today.

The New Zealand dollar increased to 63.21 yen from 62.40 yen. The kiwi rose to 50.28 British pence from 50.06 pence. It was little changed on 77.93 Australian cents from 77.87 cents.

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