NZ dollar rises after U.S. credit rating downgrade

Published: Mon 8 Aug 2011 08:26 AM
NZ dollar rises after U.S. credit rating downgrade
By Jason Krupp
Aug. 8 (BusinessDesk) - The New Zealand dollar rose against the greenback, with the U.S. dollar sliding in the wake of Standard & Poor's decision to strip the world's largest economy of its triple-A credit rating.
The greenback came under pressure in trading on Friday in New York, amid speculation the credit ratings agency was preparing to downgrade the U.S., stripping out any positive gains from the slightly better-than-expected U.S. nonfarm payroll data for July. That the downgrade was then confirmed after the close of trading, with the U.S. sovereign debt rating cut from AAA to AA+ and placed on negative outlook, set the dollar up for further declines.
"It really boils down to whether U.S. officials take this on board and make the required fiscal changes and pay down debt, or whether they carry on the path that they are on," said Alex Sinton, a senior dealer at ANZ New Zealand. "What will mean in the short run is a weaker U.S. dollar and ipso facto a stronger New Zealand dollar and Australian dollar."
The kiwi dollar was also bolstered by a stronger euro, which rose after the European Central Bank said it was considering buying Italian government bonds to help keep debt yields below 6%, which is considered a sustainable level.
"What is going to important is the volume" of bonds bought, Sinton said. "The word ‘massive’ has been used but they have yet to announce what that volume will be."
The kiwi recently traded at 84.14 U.S. cents, up from 83.74 cents on Friday in New York, and rose to 72.63 on the trade-weighted index of major trading partners’ currencies from 72.51. It rose to 80.77 Australian cents from 79.84 cents last week, and fell to 65.51 yen from 65.76 yen. It fell to 58.54 euro cents from 59.13 cents on Friday, and slipped to 51.16 pence from 51.42 pence previously.
The kiwi may trade between a range of 83.50 U.S. cents and 85.20 cents, Sinton said, with further gains against the U.S. dollar likely.
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