NZ dollar climbs almost 1 US cent on hopes of Spanish bank bailout

Thursday 7th June 2012

The New Zealand dollar rose almost one US cent on optimism European policymakers will act to stimulate the region’s economy and provide aid for Spanish banks while the Federal Reserve said the US continues to grow at a modest pace.

The New Zealand dollar increased to 76.98 US cents at 8am from 76.22 cents yesterday at 5pm. The trade weighted index rose to 69.99 from 69.48.

European Central Bank President Mario Draghi said policymakers were “ready to act” after the central bank left its benchmark rate at a record low 1 percent. The ECB also extended its lending to banks for up to three years, providing some hope for ailing Spanish lenders. In the US, the Federal Reserve said the world's largest economy maintained a moderate pace of growth as factory output rose and the real estate market improved.

"What has moved the kiwi is the hope in the market that there seems to some resolution in the Spanish situation," said Stuart Ive, currency strategist at HiFX. Optimism for an improvement in Europe “has had a big effect on New Zealand dollar sentiment.”

The ECB lowered its growth forecast to 1 percent in 2013 from 1.1 percent. Its forecast of a 0.1 percent economic contraction in the euro area this year was unchanged along with inflation at 2.4 percent for 2012 and 1.6 percent for 2013.

Fed policymakers will provide further insight on their views when vice chairmen Janet Yellen speaks in Boston and Chairman Ben Bernanke testifies to Congress on Thursday. The Beige Book also used language similar to its April report as the economy “continued to expand at a modest to moderate pace.”

Investors are looking for signs that a loss of momentum in US growth could warrant a third round of quantitative easing, or QE3.

The kiwi traded at 77.48 Australian cents at 8am up from 77.33 cents yesterday. That comes before New Zealand's biggest export market release its employment numbers this afternoon. The data will follow Australia's gross domestic product, which grew at more than twice the pace economists had predicted, expanding at 1.3 percent in the three months ended March 31.

"The Aussie employment numbers are wildly volatile," Ive said. "The New Zealand dollar will be dragged along with whatever happens with the Aussie data."

There is no significant data set for release in New Zealand today. The March quarter’s wholesale trade survey from Statistics New Zealand will be released tomorrow.

The New Zealand dollar was little changed on 61.25 euro cents from 60.93 cents and 49.68 British pence from 49.40 pence. The kiwi increased to 60.96 yen from 60.11 yen.

BusinessDesk.co.nz

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