Kiwi holds above 75 US cents after zero Budget, EU meeting

The kiwi holds above 75 US cents in local trading after the government's track back to an operating surplus gets the thumbs up from S&P's and European leaders back Greece's membership of the euro.

BUSINESSDESK: The New Zealand dollar held above 75 US cents in local trading after the government's track back to an operating surplus got the thumbs up from Standard & Poor's and European leaders backed Greece's membership of the euro.

The kiwi was little changed at 75.09 US cents at 5pm from 75.15 cents at 8am, and was down from 75.24 cents yesterday.

The trade-weighted index was little changed at 68.51 from 68.48.

Rating agency S&P affirmed New Zealand's AA foreign currency rating, and kept the outlook on stable, saying the Budget is the “latest incremental step toward consolidating the government’s fiscal settings after four years of deficits” from the country’s recession and costs relating to the Canterbury earthquakes.

Finance Minister Bill English's "zero" Budget will get the books back in the black by 2015, even as the economic outlook deteriorates.

"There were no surprises in the S&P statement," said Imre Speizer, market strategist at Westpac Banking. "The kiwi is pretty much ranging sideways between 74.40 US cents and 75.30 cents.

Traders are betting the Reserve Bank will cut 42 basis points from the 2.5% official cash rate over the coming 12 months, according to the Overnight Index Swap curve.

Treasury forecasts expect interest rates to rise early next year, though that is dependent on "the strength of the exchange rate, the strength of domestic demand and conditions in financial markets”.

European Union leaders concluded their summit in Brussels today, and affirmed their support for Greece to remain in the eurozone, though Germany still opposes jointly issued common bonds.

Mr Speizer said Greece's future in the euro is the biggest threat hanging over the kiwi, and if the Mediterranean nation exits the region's single currency financial markets would deteriorate.

"Everyone agrees that you can't manage a Greek exit in an orderly way," he said.

Traders will be watching European manufacturing figures out tomorrow to see how the region's economy is tracking.

Chinese manufacturing figures showed production in the world's second-biggest economy may shrink for a seventh month.

The New Zealand dollar to fell to 59.73 yen from 59.91 yen yesterday, and crept up to 77.08 Australian cents from 76.96 cents.

It rose to59.73 euro cents from 59.35 cents yesterday, and increased to 47.90 pence form 47.79 pence.