NZ dollar rises after China lowers bank reserve requirements to boost growth

Monday 14th May 2012

The New Zealand dollar rose after China cut the amount of cash that banks must set aside for reserves, a move that may stoke lending and economic activity in the nation’s second-largest export market.

The New Zealand dollar traded at 78.47 US cents just before 8am, up from 78.27 cents at the close of trading in New York on Friday. The trade weighted index increased to 70.61 from 70.43.

China cut the reserve requirement ratio for banks by 50 basis points to 20 percent for the third time in six months after a string of weak data pointed to a slowdown in growth. On Friday, the nation's industrial output growth slowed to 9.3 percent in April, missing estimates.

Its import gains also stalled in April. "The kiwi and Aussie remained low on the back of Friday's Chinese data but the reason we are high now is the reserve requirement cut," said Stuart Ive, currency strategist at HiFX.

"Initially for our day we are going to see this market supported now on the back of that news." The cut will be effective from May 18, according to the People's Bank of China.

Traders are also weighing the prospects of fresh elections in Greece after the nation's biggest anti-bailout party Syriza, again ruled out joining a unity government. On Sunday, leaders from the country's three biggest parties failed to reach an agreement, increasing the likelihood that Greece may exit the euro.

"It looks highly likely that they are going back to the polls," Ive said. "I don't think that is a particular surprise to the market - there is a mounting sort of background in the wider euro centre that the euro can withstand Greece leaving."

Euro zone finance ministers will meet on Monday in Brussels, followed by a meeting of all European Union finance ministers the next day. On Wednesday, German Chancellor Angela Merkel is set to meet Nicolas Sarkozy's successor, Francois Hollande. New Zealand's first-quarter retail trade data is released by Statistics New Zealand this morning.

The New Zealand dollar was unchanged on 78.04 Australian cents from the close of trading in New York on Friday. The kiwi increased to 60.68 euro cents from 60.55 cents and climbed to 48.74 British pence from 48.66 pence. It rose to 62.65 yen from 62.53 yen.

BusinessDesk.co.nz

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