NZ dollar hits 22-month high vs euro   11 May 2010

The kiwi surged 1.2% against the euro after the European Commission announced it will set up 750 billion euro facility of loans, guarantees, and funding to help the PIGS fund their deficit, while the European Central Bank announced it will buy government and private in “dysfunctional” markets to ease “severe tensions.”

The U.S. Federal Reserve reinstalled its emergency swap lines with the ECB to help take the pressure off short-term money markets. Equity markets surged in Europe and on Wall Street as investors’ sentiment bounced back on the package, while the 10-year swap rates on the PIGS’ government bonds narrowed. Greek bonds shed more than 600 basis points, and Portuguese and Irish bonds shedding more than 100 basis points each.

“The markets are back to happy days with relief across the board” after the Euro-zone package announcement, said Mike Jones, strategist at Bank of New Zealand. “The kiwi outperformed the euro because New Zealand’s fundamentals are more positive than the Euro-zone’s.”

The kiwi climbed to 56.44 euro cents from 55.73 cents yesterday, and slipped to 72.27 U.S. cents from 72.64 cents. It was little changed at 68.57 on the trade-weighted index of major trading partners' currencies, from 68.50, and slipped to 67.33 yen from 67.70 yen. It edged down to 79.96 Australian cents from 80.28 cents yesterday, and gained to 48.62 pence from 48.42 pence.

Jones said the currency may trade between 71.50 U.S. cents and 73 cents as Asian markets digest the impact of the European package. A flood of Chinese data due this afternoon, including retail sales, industrial production and producer prices may remind people about “the Asian growth story” and underpin support for the kiwi, he said.

Statistics New Zealand will release data showing spending on electronic cards for April, and while economists believe it may be softer than the March data due to the early timing of Easter, pre-sales of Rugby World Cup tickets on credit cards may provide a boost.

The Bank of England left its benchmark interest rate unchanged at 0.5% and kept the size of its asset purchase facility at 200 billion pounds as negotiations to form a government continue between the Liberal Democrats and the Conservative and Labour Parties.

(BusinessWire)

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