NZ dollar extends losses amid renewed fears in Europe

NZ dollar extends losses amid renewed fears in Europe, FOMC looms

By Paul McBeth

Nov. 2 (BusinessDesk) – The New Zealand dollar extended its decline after markets were spooked by Greece’s plans to put its bail-out from the rest of Europe to a public referendum.

The kiwi fell to 79.39 US cents at 5pm was at 79.64 US cents at 8am from 80.77 cents at 5pm yesterday.

Investors eschewed higher-yielding, or riskier, assets after Greek Prime Minister George Papandreou’s pledge to put the European Union’s refinancing package to a public referendum, renewing fears the Mediterranean nation may yet default under a weight of sovereign debt. That pledge was ratified by Greece’s Cabinet, and the vote will be held as soon as possible.

The politicisation of the deal may have caused some more volatility, but “the correction back up is not going to be over in a week,” said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional. “Kiwi-wise, it should stay under pressure for couple of weeks.”

The latest bout of turmoil emanating from Europe comes as markets prepare for the Federal Reserve’s FOMC meeting to review monetary policy. Though the Fed isn’t expected to shift its near-zero stance or make any new statements regarding a third round of quantitative easing, there’s speculation chairman Ben Bernanke may try and quell expectations the central bank can fix everything.

ASB’s Kelleher said if the Fed makes those kinds of noises, which will probably trim demand for the kiwi dollar further.

The sudden appetite for so-called safe haven assets such as the yen has undone some of the Bank of Japan’s intervention earlier this week, which weakened Japan’s currency from post-World War II highs. The New Zealand dollar spiked against the yen when there was intervention on Monday, but has since dropped to 61.93 yen from 63.14 yen yesterday.

Yesterday, the Reserve Bank of Australia cut the target cash rate half a percentage point to 4.5 percent as Australia contends with a two-speed economy, though Governor Glenn Stevens talked down the prospect of future cuts with inflationary pressures beginning to abate.

ASB’s Kelleher said he was a little surprised the kiwi hadn’t made stronger gains against its trans-Tasman counterpart given Australia’s yield advantage has reduced to just 200 basis points.

The kiwi eased to 76.64 Australian cents from 76.98 cents yesterday. It rose to 57.86 euro cents from 57.73 cents yesterday, and slipped to 49.67 British pence from 50.25 pence.

The trade-weighted index fell to 69.57 from 70.38

(BusinessDesk)

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