NZ dollar falls on EU news

Photo / Dean Purcell

The New Zealand dollar fell as risk-sensitive assets took a hit amid reports Germany is rejecting calls to expand the European Union's emergency bail-out fund.

The cost of insuring government bonds in the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain) rose after German Chancellor Angela Merkel joined her Finance Minister, Wolfgang Schaeuble, in opposing an extension to the EU's 750 billion euro aid fund or to introduce joint bond sales.

Germany has dug in its toes over bearing the cost of bailing out debt-ridden nations, and Merkel told reporters in Berlin she sees "no need to expand the fund" at the moment.

That comes ahead of today's monetary policy statement by the Reserve Bank of Australia, which is expected to hold the target cash rate at 4.75 per cent.

"European officials are gathering in Brussels to get an extension to its bail-out fund, and German opposes increasing the 750 billion euro package," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional.

"That put a little pressure on the euro" and the kiwi drifted off, he said.

The kiwi fell to 76.13 U.S. cents from 76.28 cents yesterday, and was little changed at 56.17 euro cents from 56.16 cents yesterday.

It declined to 68.55 on the trade-weighted index of major trading partners' currencies from 68.99 yesterday, and dropped to 76.21 Australian cents from 77.21 cents.

It decreased to 62.90 yen from 63.23 yen yesterday, and was little changed at 48.44 pence from 48.46 pence.

Kelleher said the currency may trade between 75.90 U.S. cents and 76.30 cents today as traders wait for the RBA decision.

The kiwi weakened against its trans-Tasman neighbour as commodity prices continued to hold up, with the Thomson Reuters/Jefferies CRB Index, a broad measure of 19 raw materials, up 0.3 per cent to 317.22.

Federal Reserve Chairman Ben Bernanke told CBS' 60 Minutes programme the bank may extend its US$600 billion asset purchase programme depending on its "efficacy," and that American unemployment may take five years to fall.

Last week, November's non-farm payrolls reported a rise in the U.S. jobless rate to 9.8 per cent from 9.6 per cent a month earlier.

Europe's sovereign debt issues are still on the horizon, with Ireland's Parliament voting on whether to pass the government's tough austerity budget that relies on two independent MPs'
support.

The budget will strip 6 billion euros of spending from the government's books this year in cuts and job losses, and will hike consumption tax after the nation went to the EU and International Monetary Fund to bail it out from defaulting on repaying debts.