NZ dollar down 5.4% on November's wild Eurozone ride

Published: Wed 30 Nov 2011 06:03 PM
NZ dollar down 5.4% in November as Eurozone wild ride continues
By Paul McBeth
Nov. 30 (BusinessDesk) – The New Zealand dollar is poised for a 5.4 percent decline in November as the European debt crisis escalates ahead of next month’s leaders’ summit to address the region’s woes.
While the kiwi rose to 76.27 US cents from 76.01 cents just before 8am, up from 75.49 cents yesterday, it has fallen over the course of the month from 80.61 cents at the end of October.
November has been a momentous month for the Eurozone, with three changes of government - two unelected – in response to the pressure for a bout of sustained fiscal austerity among weaker European economies.
While there have been many calls to make the European Central Bank a lender of last resort and avoid a full-blown global financial crisis, German Chancellor Angela Merkel has been determined not to see that happen
At times in the last month, New Zealand and Australian currencies and government bonds have enjoyed status as “safe haven” economies, with Australia securing a credit rating upgrade this week from Fitch Ratings, based on its strong economic fundamentals.
However, the Eurozone confusion has seen investors ignore fundamentals and trade on headlines and speculation, with little good news out of Europe. Italy, which needs to raise 370 billion euros to avoid defaulting early next year, sold 3.5 billion euros of three-year bonds in an auction yesterday paying a 15-year high yield of 7.89 percent.
“Italy managed to sell bonds last night, but by God they paid through the nose for it,” said Khoon Goh, head of market economics and strategy at ANZ New Zealand. “The currency is just trading off headline from headline,” and on light volumes which leaves it open to more volatility, he said.
International news will continue to attract traders’ attention. The market largely ignored today’s official statistics showing a rebound in building consents in October, the seventh month of improvement this year.
The kiwi may shed its recent gains with the Dec. 9 European Union leaders’ summit the next major event, as the region’s policymakers have to reach agreement to quell uncertainty in the markets, he said.
Next week’s monetary policy review by the Reserve Bank of New Zealand will capture the market’s attention briefly, and a Reuters survey of economists predict Governor Alan Bollard will hold the official cash rate at a record-low 2.5 percent.
Talk of an OCR cut and no increase before mid-2013 appeared this week. Traders are betting Bollard will trim 11 basis points from the OCR over the coming 12 months, according to the Overnight Index Swap curve.
The kiwi rose to 76.14 Australian cents from 76.07 cents yesterday and gained to 59.42 yen from 58.97 yen. It advanced to 57.21 euro cents from 56.62 cents yesterday, and climbed to 48.89 pence from 48.72 pence.
The trade weighted index rose to 67.94 from 67.43 yesterday.
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