Bloomberg News

N.Z. Dollar Falls as EU Leaders, Banks Strive

October 26, 2011

Oct. 27 (Bloomberg) -- The New Zealand dollar declined against its U.S. and Japanese peers as European leaders and banks failed to agree on bondholder losses as part of a second Greek bailout.

The so-called kiwi fell even after Reserve Bank Governor Alan Bollard signaled borrowing costs may need to rise as a report showed the country’s trade deficit widened by more than economists forecast. Australia’s dollar maintained losses from yesterday on speculation the nation’s central bank may lower its benchmark interest rate at a policy meeting Nov. 1.

“Central banks in this region need to make an assumption that Europe would do what it needs to do to solve its problems,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia’s second-largest lender. “Recent rallies in risk currencies were built on hope and as Europe fails to meet that optimism, I think it would start to fizzle.”

New Zealand’s dollar fell 0.2 percent to 79.97 U.S. cents as of 11:17 a.m. in Sydney. The currency declined 0.1 percent to 60.94 yen. The kiwi fell 0.3 percent to NZ$1.3011 against the Australian dollar. The so-called Aussie was little changed at $1.041 and gained 0.2 percent to 79.33 yen.

There has been no agreement on any Greek deal or a specific “haircut,” Charles Dallara, managing director of the Institute of International Finance, said in an e-mailed statement yesterday.

The IIF, which represents more than 450 financial companies, said it remains open to a dialog in search of a voluntary agreement, adding that there is no agreement on any element of a deal.

Meeting Bankers

French President Nicolas Sarkozy, German Chancellor Angela Merkel, International Monetary Fund Managing Director Christine Lagarde and European Union President Herman Van Rompuy broke away from a euro-area summit to meet with Dallara, an EU official said in Brussels.

New Zealand’s trade deficit unexpectedly widened in September on the biggest jump in imports in almost three years. Imports exceeded exports by NZ$751 million ($600 million), from a revised NZ$697 million deficit in August, Statistics New Zealand said today in Wellington. The median estimate in a Bloomberg News survey of economists was for a NZ$440 million shortfall.

Rate Unchanged

RBNZ left the benchmark interest rate at a record low as inflation slows and the European debt crisis threatens the nation’s recovery from a February earthquake.

“If global developments have only a mild impact on the New Zealand economy, it is likely that gradually increasing pressure on domestic resources will require future official cash rate increases,” Bollard said in a statement after holding the benchmark rate at 2.5 percent. “Given the ongoing global economic and financial risks, it remains prudent to keep the cash rate on hold for now.”

For New Zealand, “we’re still expecting a March hike as they didn’t take any reference to the tightening bias out,” said Tim Kelleher, Auckland-based head of institutional foreign- exchange sales at ASB Institutional, a unit of Commonwealth Bank of Australia.

Traders have added to bets the Reserve Bank of Australia will lower its target rate after a report yesterday showed the country’s inflation slowed in the third quarter. Futures traders see a 96 percent chance that the RBA will cut the benchmark interest rate to 4.5 percent from 4.75 percent at its next meeting on Nov. 1.

Australia’s consumer price index rose 0.6 percent in the third quarter from the previous three months, when it gained 0.9 percent, the Bureau of Statistics said in Sydney yesterday. Core inflation, as measured by the central bank’s so-called trimmed mean gauge, rose 0.3 percent from the previous quarter and 2.3 percent from a year earlier. Economists forecast a quarter-to- quarter gain of 0.6 percent and an annual rise of 2.7 percent.

--Editors: Jonathan Annells, Benjamin Purvis

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net;

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net -0- Oct/27/2011 00:28 GMT


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