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Kiwi falls after IMF commits $US430 billion to contain debt-crisis

BUSINESSDESK: The New Zealand dollar pared offshore trading gains at the open of local trading as investors digested news the International Monetary Fund will commit $US430 billion in fresh money to protect the world economy against Europe’s ongoing debt crisis.

The New Zealand dollar fell to 81.73 US cents at 8am from 81.87 cents at the close of trading in New York on Friday, although it remains above its 81.30 cents local close on Friday at 5pm.

The trade weighted index fell to 72.85 from 72.82.

Finance ministers of the Group of 20 nations have been at their annual meeting with the World Bank and IMF in Washington DC, discussing ways to get on top of Europe’s woes.

Though the latest IMF offer is sizeable, it wouldn’t be enough to bailout indebted Mediterranean nations Spain and Italy, said managing director Christine Lagarde, who had hoped to secure up to $600 billion.

“We are still on thin ice really,” Stuart Ive, currency strategist at HiFX, said.

“People will be taking the news on board and saying what does this mean?

“We may see the kiwi go to 81.40 cents but the strong support will hold at 81.20,” he said.

French President Nicolas Sarkozy will progress to the second round of presidential elections, despite trailing in early exit polls.

Socialist Party candidate Francois Hollande won between 29% and 29.3% of the vote, according to early projections by Bloomberg.

The candidates will square off again in two weeks.

“The market is cautions about Hollande - it is generally perceived he will not be such an aggressive defender of the euro,” Mr Ive said.

“There is a little trepidation in the market.”

China will release its manufacturing PMI today.

There is no significant data scheduled for release in New Zealand.

A review of local monetary policy settings on Thursday is expected to yield no change.

The New Zealand dollar fell to 78.77 Australian cents from 78.79 cents at the close of trading in New York.

The kiwi slid to 66.63 yen from 66.76 yen.

It was little changed on 61.98 euro cents from 61.9 cents and 50.77 British pence from 50.70 pence.

Comments and questions

Europe made a bad decision when it adopted the Euro because it is a self destabilising system. The Euro currency nations cannot alter their exchange rates to correct trade and other financial imbalances. Instead, some nations have presented misleading national accounts, borrowed cheap money and spend like there was no tomorrow.

The failing Euro economies now threaten to bring down Europe. The IMF is now trying to save the Continent, but that simply puts more paper over the growing cracks. Bailing out a rotten system simply perpetuates it. It retains and ultimately rewards the dastardly perpetrators of financial and fiscal mismanagement. The moral hazard involved is poison to all.
I would like to see the Euro disestablished. It’s a pig wearing lipstick. We have been enchanted by all the fine words, lofty ideals, and grand designs, but they will not turn the pig into a beautiful princess.

Those who are insolvent should simply be allowed to fail and the assets liquidated where possible. We then all take our pain, learn our lessons and make better laws to prevent a recurrence. The assets hopefully end up with better managers. If we can sort out the financial problems that allow so much manipulation and exploitation in the global economy, I hope we get back to creating things of real value in our economies.

I'm sorry, but an IMF bailout is a big step towards destroying the world economy. Let us draw a line in the sand, stop the rot and save the world.

Just say No!