Kiwi hits 7-month high on austerity plans in Spain, China stimulus
BUSINESSDESK: The New Zealand dollar rose to its highest level in almost seven months after Spain announced an austerity budget that may herald a formal request for a bailout, while China pumped record amounts of funds into its financial system.
The kiwi rose to 83.15 US cents, and earlier reached 83.25 cents, the highest since early March, from 82.58 cents at 5pm yesterday. The trade-weighted index rose to 73.76 from 73.40.
Spain's cabinet yesterday approved a budget that aims to reduce the 2013 deficit to 4.5% of gross domestic product, down from a target of 6.3% this year. The budget is seen as a key step in Spain successfully seeking aid under the ECB's bond-buying programme, which could happen as soon as this week.
China's central bank pumped cash into the nation's money markets and speculation has mounted it will also take steps to stoke equities. The news overnight helped lift risk sentiment and growth-linked assets such as the kiwi and the Australian dollar.
"Spain asking for a bailout would be positive because they would have activated the newly announced bond-buying programme of the ECB," says Imre Speizer, market strategist at Westpac Banking Corp. The kiwi dollar "knee jerks higher on anything positive China does – they are now a major trading partner."
He says the kiwi may trade in a range of 82.85 US cents to as high as 83.50 cents once Europe opens tonight. The kiwi's rally may yet be short-lived as a bailout for Spain does not solve all of its economic problems and there is still the looming threat of a Greek exit from the euro.
The kiwi rose to 64.39 euro cents from 64.07 cents and gained to 51.21 British pence from 51.01 pence. It rose to 79.57 Australian cents from 79.37 cents and was up to 64.55 yen from 64.11 yen.