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NZ dollar weakens ahead of OCR review as EU summit looms

Thursday 8th December 2011

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The New Zealand dollar fell ahead of the Reserve Bank’s review of monetary policy, seen keeping interest rates at a record low and painting a picture of a deteriorating global outlook.

The New Zealand dollar fell to 77.77 US cents from 77.97 late yesterday. The trade-weighted index slipped to 68.75 from 68.98.

Reserve Bank Governor Alan Bollard will hold the official cash rate at 2.5 percent today, according to all 13 economists in a Reuters survey. He may say there is no need to rush to hike rates given a more subdued global outlook, Europe’s debt crisis and relatively tame inflation at home.

“An overall downbeat assessment of local and offshore developments may see the NZD under a little pressure,” said Dan Bell, currency strategist at HiFX. “Global markets have had another quiet night awaiting further developments from the European Summit on Friday.”

Investors are looking for concrete evidence that European leaders are committed to solving their fiscal crisis at tomorrow’s summit. The euro zone's anchor nations of Germany and France are taking different approaches as they prepare to gain support for their plan to amend EU treaties to boost control over national budgets of member states. Germany is trying to downplay expectations while France sees an opportunity for a leap forward.

Their plan will mean a rewrite of the EU treaty, which would need to be approved by all 27 EU leaders and may signal European leaders are finally committing to end the crisis.

The kiwi fell to 58.01 euro cents from 58.11 yesterday and was at 60.40 yen from 60.63. It dropped to 75.66 Australian cents from 75.96 and traded at 49.55 British pence from 49.99.

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