NZ dollar falls after strong demand for Spanish bonds fails to quell debt crisis fears

Friday 20th April 2012

The New Zealand dollar fell after strong demand for Spanish government bonds failed to quell fears Europe will be able to contain a sovereign debt crisis, and European stock markets fell.

The New Zealand dollar fell as low as 81.18 US cents overnight from 81.64 cents yesterday at 5pm. The kiwi traded at 81.38 cents at 8am. The trade weighted index fell to 72.64 from 72.88.

European stock markets declined, with France’s CAC 40 index falling 2.1 percent and Germany’s DAX 30 index down 0.9 percent, after better than expected demand at Spanish and French government bond sales failed to allay concerns the region’s debt woes won’t get any worse.

The yield on the 10-year Spanish bond was 5.74 percent compared with 5.4 percent at the last sale in January, while France’s five-year notes sold at an average yield of 1.83 percent today, up from 1.78 percent on March 15.

“As long as the market is worried about Spain the New Zealand dollar will struggle on the upside,” said Mike Jones, currency strategist at Bank of New Zealand. “It’s keeping the kiwi chopping sideways or drifting lower.”

Investors will be looking to this weekend’s Group of 20 nations, International Monetary Fund, and World Bank meetings in Washington DC for clarity on how policymakers plan to deal with Europe’s debt crisis.

Weak US data also added to investors’ pessimism, with the Standard & Poor’s 500 Index falling 1 percent to 1372.65, and the Dow Jones Industrial Index dropped 0.6 percent to 12950.74.

Figures showed sales of previously owned US homes in March unexpectedly fell, while more Americans than forecast filed applications for unemployment benefits last week. Another report showed manufacturing in the Philadelphia region expanded at a slower pace in April as orders and sales cooled.

The data supports the Federal Reserve’s concerns growth may not be fast enough to sustain improvements in the job-market that have helped push unemployment to a three-year low.

Earlier this year Fed policy makers said they will hold off increasing monetary accommodation unless the US economic expansion falters or prices rise at a rate slower. It has pledged to keep interest rates near zero percent until at least the end of 2014.

There is no significant data set for release in New Zealand today.

The New Zealand dollar fell to 61.97 euro cents at 8am from 62.25 cents yesterday. It dropped to 50.68 British Pence from 50.94 pence. The kiwi was little changed at 78.75 Australian cents from 78.80 cents yesterday and largely unchanged on 66.36 yen from 66.42 yen.

BusinessDesk.co.nz

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