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NZ Dollar Outlook: Kiwi may rise to record high vs Euro after mass downgrades

Monday 16th January 2012

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The New Zealand dollar may set new record highs against the euro as investors flee the single currency after rating agency Standard & Poor’s downgraded nine European nations and amid speculation Greece may be forced to default on its debt.

The New Zealand dollar recently traded at 62.62 euro cents up from 61.23 cents on Friday. It is expected to break through last week’s record high of 62.76 cents, according to four out of the five analysts in a BusinessDesk survey. The kiwi may trade in a range of 61.50 euro cents and 63.50 cents this week, they say.

The kiwi recently traded at 79.18 US cents, up from 79.06 cents. That’s right in the middle of the forecasted range for this week of 77.50 cents and 80 cents, according to analysts surveyed.

The euro sank as much as 1.8 percent as investors fled the single currency after S&P slashed the ratings of nine European nations saying it was disappointed with policymakers’ attempts to cut a deal to prevent the region’s ballooning debt crisis.

The ratings of France, Austria, Malta, Slovakia and Slovenia were downgraded by one notch, while those of Italy, Portugal, Spain and Cyprus by two notches. The downgrades left Germany, the Netherlands, Finland and Luxembourg as the only euro zone countries with the top AAA rating.

Several of the nations downgraded are scheduled to auction more debt this week, with France and Spain planning to sell bonds and bills, while Belgium and Portugal will auction bills.

Greece continues to be one of the region’s major problems as talks between the nation’s government and private sector creditors have reportedly paused, with speculation continuing to grow that Greece may have to exit the single currency if it defaults on its debt.

The news on S&P downgrades “has been well and truly price into the kiwi,” said Imre Speizer, market strategist at Westpac Banking Corp. “The subtopic will be the negotiation with Greek bond holders. If the negotiations completely break down it will be more than just the Greek bond holds that get affected – there will be a much wider global group affected.”

A heavy week of New Zealand data kicked off this morning with the December Food Price Index, rising 0.2 percent in December, according to statistics New Zealand. There was a 2.5 percent rise in fruit and vegetables, a 1.2 percent gain in meat, poultry and fish and a fall of 2.5 percent in non-alcoholic beverages.

“The local data calendar is beginning to heat up after the holiday break,” said Mike Jones, currency strategist at Bank of New Zealand. “It might mean we might see a bit more local direction for the dollar.”

The New Zealand Institute if Economic Research’s quarterly survey of business opinion is out tomorrow, along with electronic credit card transactions for December. On Wednesday, the accommodation survey for November is released, followed by the fourth-quarter consumer price index on Thursday. This comes a week before the Reserve Bank releases its latest assessment of interest rates, which is widely expected to signal no change from the record low 2.5 percent official cash rate.

Markets will be closed in the US on Monday for Martin Luther King Day, while economic data set for release this week includes, New York Federal Reserve’s January manufacturing data, December readings on inflation from the producer price index and the consumer prices index and housing statistics.


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