Thursday 29th December 2011
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Italy's success at a debt auction today failed to stem concern about the hurdles ahead for the fiscally challenged country that needs to raise about 450 billion euros next year, highlighting the substantial challenges facing the euro zone area.
Underpinning those worries was a report that said the European Central Bank’s balance sheet climbed to a record after it lent financial institutions more money last week.
The New Zealand dollar fell against the greenback and the yen after the European Central Bank’s balance sheet grew to a record, underlining the scale of its efforts to support credit in the region and sapping investor appetite for risk.
The kiwi dollar declined to 76.92 US cents from 77.42 cents in late trading yesterday and fell to 59.93 yen from 60.23 yen.
The ECB’s balance sheet has grown to a record 2.73 trillion euros as it lent to banks, though lenders themselves have little appetite for extending credit. ECB data shows banks in the euro zone deposited a record 452 billion euros with the central bank, typically something they do with surplus funds, Reuters reported. The ECB figures offset optimism from Italy’s successful sale of short-term debt, though that nation faces a bigger test with the sale of 10-year bonds on Thursday.
The euro “dragged most risk currencies lower in sympathy” including the kiwi dollar, said Mike Jones, market strategist at Bank of New Zealand. The ECB balance sheet showed “the sheer amount of lending to banks” and raised fears about the strength of Europe’s financial system, he said.
The New Zealand dollar may trade in a range of 76.50 US cents to 77.85 cents today, Jones said. Trading volumes were light in the Christmas-New Year hiatus, when forex trading desks are typically operating with skeleton staff.
Italy is preparing to sell bonds ranging from 2014 to 2022 on Thursday and investors are speculating it may struggle to get them away at a yield of less than 7 percent – a level seen as unsustainable in terms of interest payments. Italy’s 10-year bonds traded at that level yesterday.
Stocks fell in the US, in another sign investors are eschewing risk, as they ponder the challenges faced by the world’s biggest economy into 2012. The Dow Jones Industrial Average declined 1 percent, while Europe’s FTSEEurofirst 300 Index fell 0.7percent.
The kiwi dollar slipped to 76.13 Australian cents from 76.22 cents yesterday and climbed to 49.73 British pence from 49.44 pence. It rose to 59.40 euro cents from 59.23 cents as Europe’s common currency fell to a year-low against the greenback and a 10-year low versus the yen.
The trade-weighted index was at 69.01 from 69.11.
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