NZ dollar gains vs euro after Ireland contraction

NZ dollar gains against euro after Ireland’s economy unexpectedly shrinks

By Paul McBeth

Sept. 24 (BusinessDesk) – The New Zealand dollar gained against the euro after Ireland’s economy unexpectedly shrank in the second quarter, suggesting the European region will take longer to recover from its slump.

The Volatility Index, known as Wall Street’s ‘fear gauge’, rose 6.4% to 22.43 after Ireland’s economy shrank 1.2% in the three months ended June 30, surprising economists who’d predicted growth of 0.5%. The Irish data comes a day after New Zealand posted second-quarter economic growth of 0.2%, just a quarter of the pace forecast by economists.

“Ireland GDP was a bit of a shocker” and the euro was sold off strongly, said Time Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia. “The kiwi was down on the back of (New Zealand’s) GDP” yesterday and with little new data scheduled this week, should “slowly drift off,” he said.

The kiwi rose to 54.82 euro cents from 54.51 cents and gained to 73.02 U.S. cents from 72.87 cents yesterday. It increased to 66.81 on the trade-weighted index of major trading partners’ currencies from 66.51 yesterday, and slipped to 61.58 yen from 61.66 yen. It advanced to 76.84 Australian cents from 76.46 cents yesterday, and was little changed at 46.57 pence from 46.54 pence.

Kelleher said the currency may trade between 72.70 U.S. cents and 73.10 cents today, taking its lead from offshore equity markets.

The tensions between China and the U.S. over the valuation of the renminbi continued after Chinese Premier Wen Jiabo told a business audience a 20% appreciation in China’s currency would cause job losses and bankruptcies in the world’s second-biggest economy without creating employment in America. U.S. President Barack Obama had earlier told Wen that China needed to do more to address trade and currency imbalances.

Fonterra Cooperative Group yesterday blamed the strength of the kiwi dollar for eroding earnings when it announced a 12% increase in its 2010 profit and lifted its payout for farmers.

With the kiwi beyond the dairy exporter’s comfort-zone, Kelleher said there’s a risk that next season’s pay-out will be smaller than the forecast $7.00 to $7.10 per kilogram of milk solids.

“There’s certainly not going to be a revision up,” he said.

(BusinessDesk)

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