Irish debt fears weigh on NZ dollar

Friday 12th November 2010

The New Zealand dollar dropped below 78 US cents as investors’ fears over the state of Ireland’s sovereign debt heightened amid increasing opposition for a region-wide bail-out from France and Germany.

Irish 10-year government bond yields rose to a new record of 650 basis points above their German counterparts after French Finance Minister Christine Lagarde said investors have to share the cost of bailing out sovereign nations. That comes after German chancellor Angela Merkel butted heads with European Central Bank President Jean-Claude Trichet over forcing bondholders to take losses at a European Union summit on October 29.

“The Euro-zone negative story remains and that’s what’s pushed everything down for the day,” said Imre Speizer, markets strategist at Westpac. “Currencies are clearly heading to the downside, mainly the euro” with the kiwi facing a weaker bias today, he said.

The kiwi fell to 77.91 US cents from 78.60 cents yesterday, and declined to 69.46 on the trade-weighted index of major trading partners’ currencies from 69.69. It dropped to 64.38 yen from 64.68 yen yesterday, and was little changed at 78.15 Australian cents from 78.23 cents. It climbed to as high as 57.18 euro cents, a two-month high, from 56.98 cents yesterday and recently traded at 57.08 cents. It decreased to 48.38 pence from 48.65 pence.

Speizer said the currency may trade between 77.40 US cents and 79 cents today.

The dour outlook for European debt took the focus from the Group of 20 nations summit in Seoul, which will release its final communiqué today. The draft report looks as though leaders will support indicative guidelines on correcting current account imbalances.

The Australian dollar fell below parity with the greenback to 99.72 US cents after reporting disappointing employment data yesterday. Although the so-called ‘lucky country’ added 30,000 jobs last month, beating expectations, the unemployment rate rose 0.4 percentage points to 5.4%, dimming the prospect of another rate hike by the Reserve Bank of Australia next month. Markets are betting the RBA adds 47 basis points to the target cash rate over the coming 12 months, according to the Overnight Index Swap curve.

Businesswire.co.nz

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