NZ dollar heads back towards 80USc
Currency markets operating on 'rumours and intrigue'
The New Zealand surged this morning as rumours of a solution to the EU's financial deadlock swept global financial markets.
The dollar has been rising since Monday but it picked up more than 1 cent this morning (see graph).
"That doesn't have a lot to do with anything that's been happening within New Zealand," said Westpac Bank New Zealand chief economist Dominick Stephens.
The rise followed news Slovakia would back a bailout deal to cope with Europe's distressed sovereign governments - especially Greece - but Mr Stephens said the rise was due to rumours which went further than that.
"There are some rumours circulating that a powerful package is about to be announced whereby Greece is allowed to default or restructure its debt in an orderly way," he said.
"The markets have been oscillating on rumours and intrigue at the moment and its been that way for a few weeks now."
Movements in the New Zealand dollar are highly sensitive - in the short term - to the world's credit conditions and a credible settlement in Europe would diminish the financial markets concerns about highly indebted countries like New Zealand, he said.
Over the more medium term, however, he said the trend of the New Zealand currency is likely to be down.
Lower world food prices, the near-certainty of a recession in Europe, and likely slowdowns in Asian economies are expected to push demand for New Zealand's products down.
Westpac economists are expecting the New Zealand dollar to be about 69USc by the middle of next year, he said.
Rob Hosking
Thu, 13 Oct 2011
Thu, 13 Oct 2011
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NZ dollar heads back towards 80USc
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