NZ dollar falls after Spain's PM says bailout not imminent

Wednesday 3rd October 2012

The New Zealand dollar fell along with equity markets after Spanish Prime Minister Mariano Rajoy said he has no immediate plans to request a bailout, quelling speculation that a request was near.

The New Zealand dollar rose as high as 83.30 US cents overnight falling to 82.62 cents at 8am down from 82.80 cents yesterday at 5pm. The trade weighted index decreased to 73.64 from 73.72.

Stocks fell on both sides of the Atlantic, with the Dow Jones Industrial index slipping 0.5 percent and France's CAC 40 down 0.6 percent. Spain's Rajoy is weighing up the terms of a Sept. 6 proposal by the European Central Bank president to buy bonds of cash-strapped nations including Spain if they make a formal request for aid from the region's government-run rescue fund.

"It's anyone's guess as to when Spain will formally apply to the European stability mechanism for assistance," said Mike Jones, market strategist at Bank of New Zealand. "We do know that immense diplomatic pressure is being placed on the Spanish prime minister to do so."

The New Zealand dollar rose to 80.58 Australian cents from 79.85 cents after the Reserve Bank of Australia cut its key interest rate a quarter of a percent to 3.25 percent, citing weaker commodity prices in a global market where the outlook for economic growth "has softened".

"We suspect there is more easing to come from the RBA, assuming inflation remains benign and the global outlook remains lackluster," Jones said. "The timing of the next move is highly uncertain but anticipation of a follow-up move in November should keep the AUD/USD heavy into the meeting - the RBA's pre-emptive action also leaves us more comfortable with our long-held view the NZD/AUD should trend higher into year-end."

The local currency was little changed after prices eased 0.9 percent at Fonterra's GlobalDairyTrade auction this morning. The biggest falls were seen in anhydrous milk fat, cheddar and casein.

There is no more significant New Zealand data set for release until next Tuesday's New Zealand Institute of Economic Research's business survey, so "expect the NZD/USD to take its cues from offshore," Jones said.

The New Zealand dollar fell to 63.98 euro cents from 64.18 cents and declined to 64.50 yen from 64.64 yen. The kiwi was little changed on 51.16 British pence from 51.29 pence.

BusinessDesk.co.nz

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