Kiwi dollar nudges ahead as world markets settle

Photo / Dean Purcell

The New Zealand dollar nudged higher in early trading as equity markets, European governments and the Italian bond market began to show some composure amid the region's ongoing sovereign debt crisis.

The kiwi was 77.63 US cents at 8am, up from 77.42 cents at 5am but still down from 77.80 US cents at 5pm yesterday.

As the local market opened, stocks on Wall Street were back in positive territory having withstood selling pressure a day earlier when Italian bond yields rose to record levels.

The Italian 10-year bond yield fell to 6.89 per cent overnight from 7.4 per cent earlier in the week after the government sold the maximum amount of one-year bills at an auction and amid speculation that the European Central Bank was purchasing bonds.

Helping quell the ill-feeling was the announcement from Greece that former European Central Bank vice-president Lucas Papademos will act as the head of a crisis government.

"We are getting a bit more political clarity coming out of Europe," said Khoon Goh, head of market economics and strategy at ANZ New Zealand.

Speculation that Italy was likely to form a new government within days headed by respected former European Commissioner Mario Monti was also helping sentiment.

"The market is taking the news as positive," Goh said.

The drop in Italian bond yields from recent highs was another positive, he said.

"Everyone had 7 per cent as the line in the sand when Italian debt would start to become too expensive," said Chris Tennent-Brown, FX strategist at Commonwealth Bank of Australia in Sydney yesterday.

Italy's debt problems may be weighing on the prospects for the global economy next year, and on commodity prices, which could slow New Zealand's economic recovery and trim the appeal of the kiwi dollar, Tennent-Brown said.

Locally investors will assess food price index data this morning but it is not expected to be a market mover.

The kiwi was likely to trade in a narrow range today, Goh said.

Agencies also reported that rating agency Standard & Poor's said a message was erroneously sent out to some of its subscribers suggesting France's credit rating had been lowered. It affirmed France's AAA rating.

Reserve Bank deputy governor Grant Spencer told a media briefing in Wellington yesterday that he wouldn't expect the kiwi to show much strength in the near term amid the current turmoil in financial markets. The central bank's financial stability report said the currency was at risk of a sharp depreciation given the increased cost of insuring against it becoming weaker.

Domestic politics may become more of a focus ahead of the November 26 election. The New Zealand Herald reported today that National has plunged nearly five points to below 50 per cent in the latest Herald-DigiPoll survey.

The kiwi was little changed at 76.63 Australian cents from 76.61 cents yesterday, and was at 60.46 yen from 61.44 yen yesterday. It was at 57.46 euro cents from 57.43 cents and 48.85 British pence from 49.83 pence yesterday.

The trade-weighted index declined to 68.53 from 68.73.