NZ dollar extends gains vs. euro ahead of Spanish, Italian govt bond auctions

By Paul McBeth

Jan. 11 (BusinessDesk) – The New Zealand dollar rose against the euro through local trading today ahead of Spanish and Italian bond auctions on Wednesday in Europe that will test investor sentiment for the heavily indebted nations.

The kiwi rose to 62.24 euro cents from 62.04 cents at 8am and up from 62.10 cents yesterday. The currency was little changed at 79.31 US cents from 79.35 cent at 8am and unchanged from yesterday. The kiwi had earlier climbed above 79.50 cents for the first time in two months.

New Zealand’s currency may extend its march against the euro with looming government bond auctions in Italy and Spain likely to remind investors of the parlous state of those nations’ debt profiles. The yield on Italy’s 10-year bonds of 7.14 percent exceeds the 7 percent figure that investors decided was too expensive, while the yield on Spain’s 10-year bond was recently at 5.5 percent. Spain will sell bonds due in 2015 and 2016 while Italy will auction bills on Jan. 12 and debt due in 2014 and 2018 on Jan. 13.

“The yield on Italian bonds is getting back into the spotlight,” said Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. “As long as the fundamentals remain this weak and volatility remains low, both the kiwi and Aussie could press higher” against the euro, he said, referring to the trans-Tasman currencies colloquially.

The bond auctions come ahead of Thursday’s European Central Bank and Bank of England meetings, where investors will be looking for the ECB to shore up support for the region.

A string of upbeat US data has undermined the euro’s strength, and investors will be looking at the release of the Federal Reserve’s Beige Book, its report on regional economic conditions, to get a reading on the health of the world’s biggest economy.

“That’s dampening expectations the Fed will need to do quite as much as what people were thinking,” Tennent-Brown said.

The kiwi was little changed at 77.09 Australian cents from 77.03 cents yesterday, and traded at 51.30 British pence from 51.26 pence. It was little changed at 60.90 yen from 60.97, and rose to 71.04 on the trade-weighted index from 70.97.

(BusinessDesk)

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