NZ dollar slips amid Spanish downgrade speculation, central bank meetings loom

Monday 5th December 2011

The New Zealand dollar declined amid speculation Spain’s sovereign credit rating may be downgraded, eroding investor confidence in the wake of last week’s move by central banks to cut European borrowing costs.

The kiwi dollar slipped to 77.85 US cents just after 8am, down from 77.97 cents in late New York trading on Friday.

The Dollar Index, a measure of the greenback against a basket of currencies, climbed 0.6 percent amid rumours Spain’s credit rating may be cut, just two months after Standard & Poor’s downgraded the heavily indebted nation’s rating to AA-.

That sapped the upbeat sentiment lingering from last week when central banks agreed to cut rates on dollar liquidity swap lines to free up conditions for European lenders.

That comes as the region’s leaders prepare for a Dec. 9 summit, where it’s expected they will unveil an agreement to provide the necessary incentives and penalties to encourage individual member nations to live within their means.

If an agreement is reached then the pressure on the euro zone government bonds yields should ease from their recent highs. French President French President Nicolas Sarkozy and German Chancellor Angela Merkel today meet to work on a common proposal in the lead-up to the summit.

“The markets could get ahead of themselves early in the week only to be disappointed, we are already starting to see headlines coming out of Europe but we will have to wait,” said Khoon Goh, head of market economics and strategy at ANZ New Zealand.

Moves in New Zealand this week will be focused around expectations of the Reserve Bank’s monetary policy statement, the review is due out on Thursday.

Goh said “domestic data taking a back foot to wider global developments,” and after a brief moment the New Zealand currency will gravitate back towards what is happening offshore.

New Zealand’s monetary policy review is one of several this week, including Australia, England and Europe, which will all attract investors’ attention.

US payrolls data released on Friday provided light relief with a net 120,000 jobs added in November, the highest for a while, it was slightly shy of expectations. The US’s unemployment rate unexpectedly fell to 8.6 percent, its lowest level since March 2009.

Locally, the value of building work for the September quarter due out this morning.

The kiwi dollar fell to 76.06 Australian cents from 76.36 on Friday and 60.65 yen from 60.75 yen. It rose slightly to 58.12 euro cents from 58 cents and was unchanged at 49.77 British pence.

The trade weighted index down to 68.96 from 69at 5pm on Friday.

BusinessDesk.co.nz

Comments from our readers

No comments yet