Dollar spikes above 82USc
Kiwi climbs on EU debt crisis breakthrough.
The New Zealand dollar is on the climb again.
The dollar breached 82USc this morning, for the first time in five weeks.
The dollar began to pick up after yesterday’s Reserve Bank official cash rate statement, but it was the overnight news of an EU debt breakthrough that saw the currency stir above 81USc (see graph).
The New Zealand dollar hit broke through 80USc three months ago, peaking at a little above 88USc.
The EU deal involves those institutions owning Greek bonds accepting 50% on their debt and news of the agreement has seen a rebound in global equities as well as in currencies like the New Zealand and Australian dollars.
The significance of the EU deal is that it removes, or at least allays, fears of a re-run of the 2008-09 financial crisis, when bank funding dried up, says Bank of New Zealand currency strategist Mike Burrowes.
“Obviously the overnight news was good, people have been wanting a rescue package for some weeks now…what it does is removes fears we were going to see the kind of bank funding lock up we saw during the global financial crisis.”
Reserve Bank governor Alan Bollard’s brief official cash rate statement yesterday specifically referred to the risk of New Zealand’s banks being hit by the kind of funding problems they saw three years ago as one of the reason for holding off raising the OCR above its present 2.5%.
“This [deal] is not the cure for all Europe’s woes,” Mr Burrowes said. “There’s going to be a pretty painful period of austerity across Europe, and growth is probably going to be pretty slow going forward.
“We’ll also probably see brief bouts of risk aversion affecting the currency, but we think we’re on track to be back in the mid 80USc by the middle of next year.
“If you step back from all that, New Zealand is in a pretty good position: commodity prices have come off their peaks but they’re still very by historic standard, and we should see GDP growth pick up pretty strongly next year.”
Rob Hosking
Fri, 28 Oct 2011
Fri, 28 Oct 2011
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Dollar spikes above 82USc
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