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NZ dollar rises on speculation ECB will help Spain; Fed report boosts mood

Thursday 12th April 2012

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The New Zealand dollar rose after the European Central Bank indicated it may buy Spanish government debt to reduce the nation’s borrowing costs and the Federal Reserve said the US economy maintained growth in all 12 of the central bank’s regions, stoking investor’s appetite for riskier, or higher-yielding, assets.

The New Zealand dollar rose as high as 82.13 US cents from 81.64 cents yesterday at 5pm. It traded at 81.73 just after 8am.

ECB board member Benoit Coeure indicted the bank may buy Spanish debt, helping ease concerns about Europe’s sovereign debt crisis. He said investors in Spanish bonds were unfairly assessing the reforms undertaken by the government and the ECB still retains the ability to buy the bonds of EU nations. The kiwi rose as high as 62.53 euro cents from 62.38 cents yesterday, and traded at 62.36 cents at 8am.

“The European situation is a lot of hot air about nothing – once the ECB step in it will make pretty hard for these economies to back into a corner,” said Stuart Ive, currency strategist at HiFX. “This market is ranging and it is reacting off what is put in front of it – the New Zealand dollar is still looking for direction.”

In its latest monthly review of the US economy, the Beige Book, the Fed said the economy maintained growth in all 12 of the central bank’s regions. Manufacturing, hiring and retail sales all showed signs of strength even amid rising fuel prices.

“The New Zealand dollar is doing the see-saw trend - a little bit of selling came in after the Beige Book,” Ive said.

The comments from the ECB and the Fed’s Beige Book underpinned investor sentiment, which was already upbeat after better-than-expected earnings results from the world’s second-biggest aluminium producer Alcoa. Stocks on Wall Street gained with the Standard & Poor’s 500 index rising 0.7 percent to 1368.71.

At Federal Open Market Committee’s March meeting, policy makers said it will hold off increasing monetary accommodation unless the US economic expansion falters or prices rise at a rate slower. In January, the Fed pledged to keep interest rates near zero and 0.25 percent until at least end of 2014.

In Australia, the focus will be on inflation and employment numbers set for release today.

New Zealand’s accommodation survey for February and electronic card transactions for March are both scheduled for release by Statistics New Zealand today. 

The New Zealand dollar was little changed on 79.31 Australian cents from 79.35 cents yesterday. The kiwi fell to 51.35 British pence from 51.44 pence. It rose to 66.09 yen from 65.98 yen.

The trade weighted index was little changed on 72.99 from 73.01.


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