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US markets quiet, NZ dollar at record highs against euro

The kiwi has traded at 61.72 euro cents, the highest level since the common European currency was introduced in 2002 and just above the previous high of 61.70 euro cents traded in August last year.

NBR staff
Tue, 10 Jan 2012

The New Zealand dollar is at record highs against the struggling euro as European economic woes continue.

The kiwi has traded at 61.72 euro cents, the highest level since the common European currency was introduced in 2002 and just above the previous high of 61.70 traded in August last year.

BNZ currency strategist Mike Jones said traders spent much of the overnight session holding their breath for the outcome of the latest Franco-German summit.

“In the event, there was little fresh news for markets. The French and German leaders discussed ways to boost growth in the Eurozone, and again warned Greece there would be no more bailout cash unless private bondholders share the pain of the bailout,” he said.

Westpac senior market strategist Imre Speizer said the meeting produced “some rhetoric but little else” with German chancellor Angela Merkel stressing again that “no country must leave the Euro”, in contrast to the stance of her coalition partner.

Westpac’s points of note from the meeting were: Chancellor Merkel and President Sarkozy announced that agreement on the new budget rules including the balanced budget requirement to be enshrined in euro member constitutions, should be reached by January and signed by March (representing something of a fast-track); the capitalisation of the permanent bailout fund (ESM) would be accelerated (but not increased, at least yet); they also announced a push to revive economic growth, without specifying how (and it will be difficult with budget austerity measures being imposed), although they have asked the EU Commission to find new measures to create jobs and improve the mobility of Labour; and they also urged that the Greek debt restructure be finalised quickly

BNZ’s Mike Jones said the kiwi dollar was the strongest performing currency over the past 24 hours with a bout of NZD/AUD buying, combined with a broadly weaker USD, seeing the NZD/USD lift around half a cent to 78.50USc.

BNZ has just released its 2012 NZD Roadmap in which it says the NZD/USD is susceptible to a modest downward correction through Q1 as slowing global growth and ongoing European debt dramas act to suppress investors’ risk appetite and commodity prices.

It also reiterates the view that January, and to a lesser extent February, are historically seasonally negative months for the NZD/USD and NZD/AUD.

“We forecast the NZD/USD at 0.7400 by the end of the March quarter, then appreciating gradually to reach 0.8200 by the end of the year. Put another way, 2012 is shaping up as another year in which currency volatility trumps any obvious trend,” Mr Jones said.

US markets
Overnight, US markets edged modestly higher as European leaders met to discuss the region’s continuing debt crisis, with attention also focussed on the onset of the US Q4 reporting season, IG Markets’ analyst Cameron Peacock said.

The Dow Jones Industrial Average rose 0.25% to close at 12,392, the S&P matched the move, also rising 0.25% to 1280, while the NASDAQ edged 0.1% higher to end at 2676.

Among the major S&P sectors, energy, industrial and financial names were all firmer, while materials stocks finished marginally weaker,” Mr Peacock said.

“Last night was really a bit of a ‘nothing’ session in the US, with stocks idling along in a narrow trading range in anticipation of Alcoa’s result; after the bell Alcoa reported a 3% share loss, which was in line with expectations.”

He added that quarterly growth expectations for S&P 500 companies have been wound back from 14% to 6% over the last few months, with much of the attention of the analyst community likely to be focussed on how the slowdown in Europe in particular, and to a lesser degree, emerging markets, will impact revenue projections.

“While expectations for earnings season have been pared back, many are still hopeful that growth levels and forward projections are enough to convince the ‘sidelined money’ that stocks are cheap and worth buying at these levels,” Mr Peacock said.  

NBR staff
Tue, 10 Jan 2012
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US markets quiet, NZ dollar at record highs against euro