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NZ dollar recovers as new Italian govt sworn in, allaying fears over European debt

Thursday 17th November 2011

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The New Zealand dollar climbed from a six-week low after Italian President Giorgio Napolitano swore in a new technocrat government to help tackle the European debt crisis, bolstering confidence the region will be able to prevent the spread of mounting sovereign indebtedness.

The kiwi dollar was at 77.03 US cents just before 8am, up from 76.64 US cents yesterday at 5pm. It touched a fresh low of 76.29 cents during the New York trading session.

Former European Central Bank deputy head Mario Monti will head up the new Italian government and also hold the finance portfolio. The crisis government was installed to replace Silvio Berlusconi’s administration, which oversaw a blow-out in public debt that spooked market investors.

The new Italian government will work to win back market confidence as Italy works to refinance the 200 billion euros of bonds by the end of April, and a further 170 billion euros by the end of next year to meet outstanding debt and interest costs. That equates to about a quarter of that nation’s gross domestic product.

The rising costs for heavily indebted nations prompted speculation the ECB stepped in to buy Italian and Spanish bonds. The yields on Italian 10-year government bonds rose 11 basis points to 7.12 percent and Spanish 10-year debt increased 1.2 basis points to 6.44 percent.

“The market is taking a breather after the confirmation in Europe over night. It has just settled the market a little,” Said Kymberly Martin, market strategist at Bank of New Zealand. “In the currency markets there has been some consolidation” which saw the kiwi recover some of its losses, she said.

In local news, the main driver will continue to be Europe concerns with the only local data released today New Zealand producer prices.

"It is not really a currency mover so markets will continue to look of shore," Martin said.

The Kiwi dollar rose to 77.03 Australian cents from 76.64 yesterday having touched a fresh five-month low, and rose 59.19 yen from 59.06 yen. It rose to 48.82 British pence from 48.6 British pence and was little changed at 56.89 euro cents from 56.95 yesterday.

The trade weighted index was at 67.97, up from 67.84 yesterday.

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