NZ dollar extends decline after Spanish govt bond sale misses expectations

Friday 18th November 2011

The New Zealand dollar extended its decline as fears over Europe’s ability to meet ballooning debt repayments linger, after a Spanish government bond auction fell short of expectations.

The kiwi dollar was at 76.26 US cents just before 8am, down from 76.68 cents yesterday a 5pm.

Investor sentiment was dented, with the Euro falling 1 cent to US$1.3440, after the Spanish government sold 3.56 billion euros in a new 10-year bond for an average yield of 6.98 percent up from 5.43 percent when it sold the securities on Oct 20. It was seeking to raise 4 billion euros from the sale. That yield is just short of the 7 percent line in the sand markets put in place for Italian 10-year bonds.

The European Central Bank reportedly bought Spanish and French government bonds overnight in an attempt to ease concerns the region’s third-largest economy will be unable to handle its debt repayments, giving the euro a temporary reprieve. The yield on 10-year French government bonds fell 6.1 basis points to 3.57 percent, and the yield on 10-year Spanish bonds declined 1.1 basis points to 6.51 percent.

Spanish and French bonds continue to remain a risk and talk of a potential European downgrade by Fitch is keeping investors pessimistic, said Tim Kelleher, head of institutional FX sales NZ ASB Institutional.

That downbeat sentiment is overriding some positive signs in the New Zealand economy, with benign inflation giving the Reserve Bank more time to keep interest rate settings stimulatory, and recent retail sales figures showing a surge on the back of the Rugby World Cup.

“The kiwi has had good support, but we have to keep an eye on what’s happening off shore but locally we are seen as a bit of a safe haven,” Kelleher said.

The kiwi dollar rose to 75.91 Australian cents from 75.66 yesterday having touched a fresh five month low earlier in the week, and declined to 58.80 yen from 58.99 yen yesterday. It gained to 56.76 euro cents from 56.67 cents yesterday and was little changed at 48.58 pence from 48.57 pence.

The trade weighted index fell to 67.62 from 67.76 yesterday.

BusinessDesk.co.nz

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