NZ dollar falls on weak US data, talk of Spanish downgrade

Monday 1st October 2012

The New Zealand dollar fell after weak US data and speculation Spain's credit rating may be cut to junk eroded investors' appetite for higher-yielding, or riskier, assets.

The kiwi fell to 82.82 US cents at 8.30am from 82.97 cents on Friday in New York, and was little changed at 73.81 on a trade-weighted basis from 73.91 last week.

Wall Street's Standard & Poor's 500 Index fell 0.5 percent on Friday after the Chicago PMI showed shrinking activity last month and weaker-than-expected consumer confidence. Sentiment was dimmed by speculation Moody's Investors Service may cut Spain's government debt to junk.

The yield on Spain's benchmark 10-year government bond fell 1.3 basis points to 5.949 percent. Investors were expecting Spain would seek a formal bailout for its ailing banking system ahead of stress testing last weekend, which showed the nation's lenders have a capital deficit of 59.3 billion euros.

"US data disappointed, and the fact Spain hasn't asked for a bailout and the rumours of a Spanish downgrade were all negatives," said Imre Speizer, market strategist at Westpac Banking in Auckland. "The kiwi hasn't opened with any conviction" and will probably stay in recent trading ranges, he said.

Speizer said the currency may trade between 82.35 US cents and 83.40 cents today.

The currency may extend its rally against its Australian counterpart having touched 80.17 Australian cents in today's session, the first time it's broken above 80 cents in more than a year. Australian markets are closed for the Labour Day holiday ahead of tomorrow's central bank meeting.

Markets are undecided on whether the Reserve Bank of Australia will cut its 3.5 percent target cash rate.

The kiwi recently traded at 79.83 Australian cents from 79.88 cents last week. The currency was little changed at 64.60 yen from 64.58 yen last week, and traded at 64.45 euro cents from 64.47 cents. It was almost unchanged at 51.28 British pence from 51.27 pence.

BusinessDesk.co.nz

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