NZ dollar's comeback short-lived

Photo / Dean Purcell

The New Zealand dollar failed to maintain an overnight comeback, opening low this morning as it was dragged down by a weak euro following Germany's announcement to ban "naked short-selling".

By 8am the NZ dollar was at US69.37c, down from US69.55c late yesterday afternoon, after reaching more than US70.40c overnight.

BNZ strategist Mike Jones said the NZ dollar's overnight gains were short-lived as a result of Germany's surprise announcement, which inspired widespread panic.

"Currencies like the NZD were sold aggressively as investors flocked back into 'safe-haven' assets. From above 0.7030, NZD/USD slipped back to 2-1/2 month lows around 0.6950."

Against the euro, the NZ dollar was stronger, up to 0.5683 at 8am from 0.5640 at 5pm yesterday.

The euro continued to fall reaching a fresh four-year low overnight against the US dollar after concerns over government spending cuts continued, and Germany said it plans to ban naked short-selling from midnight in the country's 10 most important financial institutions.

In naked short selling, a trader sells a financial instrument short, betting that its price will fall, without first borrowing the instrument or ensuring that it can be borrowed, as would be done in a conventional short sale.

The ban will also apply to credit default swaps (CDS) on euro government bonds as well as euro government bonds.

The kiwi stayed strong against the Australian dollar after the Reserve Bank of Australia indicated it had finished with interest rate rises for now.

The RBA said in minutes to its May 4 meeting, when it lifted the key rate by 25 basis points to 4.50 per cent, that rates were back at average levels with the latest rise, its sixth in seven meetings.

The NZ dollar was up to A80.21c this morning from A79.76c at 5pm yesterday.

It was down to 64.09 Japanese yen from 64.30, and up to 48.39p against the British pound from 48.35p yesterday.

The trade weighted index was down up from 67.18 at 5pm yesterday to 67.38 this morning.

- NZPA