NZ dollar holds below US74c as investors assess Japanese risk

Photo / Dean Purcell

The New Zealand dollar held below 74 US cents, as investors assessed whether emergency measures put in place by the Bank of Japan would limit the Japanese earthquake-tsunami disaster from spreading in global markets.

The Bank of Japan poured 15 trillion yen into the financial system yesterday and increased the size of its asset-purchase program following last week's earthquake in a bid prop up its economy and prevent a massive repatriation of overseas funds.

That helped ease risk aversion to some degree, although global equity markets were trading down, with the Standard & Poor's 500 Index 0.8 per cent lower in afternoon trade. The VIX, a measure of the implied volatility of S&P 500 index options, rose to 22.15 from 21.43 yesterday, its highest level since February 23.

"People are more conscious of assets on the fringe, given the uncertainties around the Japanese earthquake," said Alex Sinton, senior dealer at ANZ New Zealand. "I would have thought it to be a more detrimental day given that we've failed to hold above 74 US cents."

The kiwi rose to 73.99 US cents from 73.92 cents yesterday and fell to 65.12 on the trade-weighted index of major trading partners' currencies from 65.30.

It dropped to 73.22 Australian cents from 73.27 cents yesterday, and declined to 60.40 yen from 60.70 yen. It fell to 52.82 euro cents from 53.01 cents yesterday, and sank to 45.68 pence from 46.01 pence.

The euro gained for a second day after European Union leaders agreed to widen the scope of a rescue fund aimed at resolving the debt crisis and cut the cost of loans to Greece. The deal will allow leaders to spend 440 billion euros from 250 billion euros previously, although it won't be used to finance bond buybacks for debt-strapped states.

Sinton said the currency may trade between 73.60 U.S cents and 74.20 cents today as the market watches the Japanese situation unfold.