Irish bail-out and China's braking drive currency sentiment

Monday 22nd November 2010

International currency markets are focusing on growing Irish acceptance of a European Union bail-out and a technical monetary policy tightening in China.

However, the New Zealand dollar was little-changed over the weekend, with migration statistics the main local data point of interest this week.

Investor nerves over the parlous state of Europe's sovereign debt were eased after Irish Finance Minister Brian Lenihan said he will put forward a package for cabinet approval that will ask the International Monetary Fund and European Union for funds to make sure it can meet its debt repayments.

Upbeat sentiment was tempered by a 50 basis point hike in China's reserve ratio requirement, the level of funds lenders have to keep on hand, as the world's second-biggest economy tries to rein in inflation.

The Thomson Reuters/Jefferies CRB Index, a measure of the price of 19 raw materials, dropped 1.2% as China moves to slow down its economic growth.

"If Ireland gets the bail-out, the market is thinking it will stem the threat of contagion," said Imre Speizer, markets strategist at Westpac. "The Aussie is under more pressure than the kiwi" over the Chinese moves due to its greater exposure to the economy, he said.

The kiwi was little changed at 77.86 US cents from 77.81 cents on Friday in New York, and edged up to 69.59 on the trade-weighted index of major trading partners currencies from 69.52.

It rose to 78.85 Australian cents from 78.65 cents last week, and fell to 56.77 euro cents from 56.87 cents. It was little changed at 64.92 yen from 64.85 yen last week, and rose to 48.67 pence from 48.41 pence.

Speizer said the currency may trade between 77.50 US cents and 78 cents today with migration data attracting more attention than usual.

New Zealand has seen an unexpected turnaround in net migration in recent months, and if it continues it will help consumer spending recover, which will push up interest rates and the kiwi dollar in turn, he said.

BusinessDesk.co.nz

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