Kiwi holds gains as Fitch, Moody's approve of Budget, Euro woes settle

BUSINESSDESK: The New Zealand dollar held its gains in local trading after Moody's Investors Service and Fitch Ratings gave the government's budget the thumbs up, helping distract from an undertone of concern over Europe's sovereign debt woes.

The kiwi was little changed at 75.30 US cents at 5pm from 75.32 US cents at 8am, and up from 75.09 cents yesterday. It fell 0.2% against the greenback on the week.

The trade weighted index rose to 68.83 from 68.51 yesterday. 

Fitch and Moody's joined Standard & Poor's giving Finance Minister Bill English's fourth Budget the nod of approval, affirming their foreign currency ratings for New Zealand of AA and Aaa respectively.

All three rating agencies noted the government's path back to operating surpluses and the administration's efforts to keep a lid on debt.

Mr English's plan included a grab-bag of tax hikes and budget cuts to get the books in black by 2015.

"The rating agencies can tolerate, and expect it may take a year longer, or even two years longer [to get to surplus] but realise the government is doing the right thing," said Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney.

"If volatility stabilises, the kiwi should be able to grind a little bit higher."

Still, traders are betting on at least one rate cut by the Reserve Bank over the next 12 months, with 43 basis points of cuts to the 2.5% official cash rate priced in on the Overnight Index Swap curve over that period.

Investors' frazzled nerves were temporarily eased by Italian Prime Minister Mario Monti, who said he believes Greece will keep the euro, though it is not a sure thing.

European Union leaders yesterday concluded their summit in Brussels and affirmed support for Greece, even as Germany continued to oppose the joint issue of common bonds

The New Zealand dollar rose to 60.09 euro cents from 59.73 cents yesterday and increased to 48.09 British pence from 47.90.

It increased to 60.02 yen from 58.73 yen and rose to 77.31 Australian cents 77.08 cents yesterday.