Dollar rises on Irish bailout prospect

Photo / Dean Purcell

The New Zealand dollar rose on optimism that Ireland will accept a financial rescue package, soothing fears of an escalating debt crisis in Europe and giving investors more confidence to take on risk.

Ireland's central-bank governor Patrick Honohan confirmed that the country was likely to accept a rescue package worth "tens of billions" from the European Union and the International Monetary Fund to bail its ailing banks.

The news settled nerves in equity and commodity markets and the Thomson Reuters/Jefferies CRB Index, a broad index of commodity prices, rose 2.2 per cent.

The kiwi dollar drew support from "the stronger euro on news in Ireland that the wheels are turning as far as an assistance package from the European Union is concerned," said Alex Sinton, a senior dealer at ANZ New Zealand.

"It is broadly agreed that things are serious enough that something needs to be done, and the wider EU countries understand now is not the time to kick someone out, and everyone needs to make tough decisions together."

The kiwi rose to 77.75 US cents from 77.44 cents late yesterday, and rose to 69.63 on the trade-weighted index of major trading partners' currencies from 69.40.

It rose against the Australian dollar to 78.65 Australian cents from 78.55 cents yesterday, and rose to 64.94 yen from 64.45 yen.

It rose to 57.09 euro cents from 57 cents yesterday, and fell to 48.51 pence from 48.62 pence.

Sinton said he remains cautious on possible policy tightening in China, despite a statement from the Chinese State Council saying it would look at a series of measures to curb inflationary pressures, not just interest-rate hikes.

"There is still the possibility that they could raise interest rates later today and that is something that people have their eyes on," Sinton said.

"They do have to go higher, and they are facing inflationary pressures as are a number of countries."

He said he expects activity in the kiwi dollar to remain "reasonably quiet", and should trade between 77.10 U.S. cents and 77.90 cents today.