Kiwi at two-week lows as EU ratings and bond auctions loom

NZ dollar near two-week low as EU re-ratings and bond auctions loom

By Paul McBeth

Dec. 13 (BusinessDesk) – The New Zealand dollar held near a two-week low through local trading as investors await the formal response of rating agencies to the weekend’s European Union agreement to set region-wide fiscal controls.

The assessment comes as several European nations look to tap investors afresh for debt.

The kiwi fell as low as 76.10 US cents and traded at 76.42 cents at 5pm, up from 76.23 US cents at 8am. That’s down from 77.19 cents at 5pm last night. The trade-weighted index declined to 68.14 from 68.48 yesterday.

Moody’s Investors Service put all 27 EU member nations’ sovereign credit ratings on threat of a downgrade overnight, effectively giving the regional agreement a ‘thumbs down’ and prompting investors to steer away from riskier, higher-yielding assets. That comes after rival Standard & Poor’s put 15 of the euro-zone nations on notice in the lead-up to the EU summit, including triple-A rated powerhouses France and Germany. If the sovereign credit ratings get downgraded, that should push up the cost of government borrowing, further escalating the debt woes in the region.

“The real thing the market is focused on is how the European Financial Stability Fund goes in raising funds and likewise, how bond markets go this week,” said Chris Tennent-Brown, foreign exchange economist at Commonwealth Bank of Australia. “The New Zealand dollar has given back its gains, and came off a lot quicker than we expected.”

The EFSF, which was set up to provide a funding vehicle for the region’s struggling members, will look to raise short-term money this week, while France, Spain, Greece, Belgium and Italy will all hold bond auctions.

Tennent-Brown said there’s little doubt there won’t be enough demand for the bonds, but if the nations pay too much, then it will do nothing to address the underlying issue.

The kiwi dropped to 75.68 Australian cents from 75.83 cents yesterday, and fell to 59.46 yen from 59.95 yen. It was little changed at 57.87 euro cents from 57.82 cents yesterday, and declined to 48.92 British Pence from 49.38 pence.

(BusinessDesk)

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