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Kiwi pares loss as US Aaa-rating questioned

Friday 30th July 2010

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The New Zealand dollar pared yesterday’s loss after Moody’s Investors Service questioned America’s Aaa credit rating, while upbeat European sentiment stoked investors to eschew the greenback in favour of higher-yielding, or riskier, assets.

A top official at rating agency Moody’s said the world’s biggest economy needs a “credible” plan to address its burgeoning debt burden to ease risks to its Aaa rating. An unexpected gain in European economic confidence stoked investors to return to the euro, with increased risk appetite paring the kiwi’s loss yesterday.

New Zealand’s currency tumbled after the Reserve Bank said the kiwi’s gains were “inconsistent” with a softer economic outlook, even as Governor Alan Bollard hiked the Official Cash Rate a quarter-point to 3%.

“There were fears about the US triple-A rating, and more positive data out of the Euro-zone which caused some gloom that US growth might be slowing in its momentum,” said Mike Jones, strategist at Bank of New Zealand.

“The Reserve Bank knocked the steam out of the currency, but it didn’t stay down for very long with more US dollar weakness.”

The kiwi dropped to 72.39 US cents from 72.74 cents last night after it sank as low as 72.09 cents after the OCR hike. It fell to 67.42 on the trade-weighted index of major trading partners’ currencies from 67.72 yesterday, and declined to 62.94 yen from 63.36 yen. It decreased to 55.37 euro cents from 55.67 cents yesterday and was down to 46.38 pence from 46.53 pence. It slipped to 80.40 Australian cents from 80.60 cents yesterday, a two-month low.

Jones said the currency may trade between 72 US cents and 72.90 cents today as it waits on second-quarter US gross domestic product data today.

The market is picking the US economy grew an annualised 2.7% in Q2, and more disappointing news will see the greenback extend its losses, Jones said.

“The real trend starting to emerge is US dollar weakness – as long as that continues, we’ll keep seeing more support in the kiwi, which could test its 74.40 US cents high for the year,” he said.

Businesswire.co.nz

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