NZ dollar pares gains after Greek credit downgrade

Tuesday 15th June 2010

The New Zealand dollar pared its gains, having risen above 70 U.S. cents for the first time in four weeks, after Moody’s Investors Service cut Greece’s sovereign credit rating four notches to a sub-investment grade.

Investors’ appetite for riskier, or higher-yielding, assets dimmed after Moody’s cut Greece’s rating to Ba1 and said there are substantial risks in the Euro-zone and the International Monetary Fund’s rescue package for the debt-stricken nation. This came after equity markets and commodity prices rallied on better-than-expected industrial production data in Europe and upbeat comments by St Louis Federal Reserve President James Bullard that the world’s economic recovery was “unlikely to be derailed.” Following the Greek downgrade, stocks on Wall Street ended slightly lower, with the Standard & Poor’s 500 Index, which currently has a close correlation with the kiwi dollar, down 0.2%.

“The overnight session was fairly positive for risk appetite, with a bit more ammunition for markets to continue with their risk rally,” said Mike Jones, strategist at Bank of New Zealand. “The gloss got taken off the kiwi after the downgrade of Greece four notches, but it shouldn’t have been news” as the move brings Moody’s into line with Standard & Poor’s rating, he said.

The kiwi fell to 69.56 U.S. cents from 69.66 cents yesterday after rising as high as 70.17 cents, and dropped to 67.31 on the trade-weighted index, from 67.47. It slipped to 63.62 yen from 63.98 yen yesterday, and rose to 81 Australian cents from 80.91 cents. It was little changed at 56.88 euro cents from 56.86 cents yesterday, and declined to 47.15 pence from 47.28 pence.

Jones said the currency may trade between 68.50 US cents and 70 cents today. The kiwi will take its lead from the Australian dollar, with the Reserve Bank of Australia minutes out today and RBA Deputy Governor Ric Battelino delivering a speech this afternoon.

Jones predicts the New Zealand dollar will have another attempt at breaking above 70 cents, and will need to close above that level to push higher.

Real Estate Institute of New Zealand housing data out today is expected to show the property market was still subdued last month, with households continuing to focus on paying down debt.

Businesswire.co.nz

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