NZ dollar falls as markets prepare for ECB lending

By Hannah Lynch

Feb. 23 (BusinessDesk) – The New Zealand dollar fell as sentiment towards risk-currencies begins to fade ahead of the European Central Bank's second tranche of three-year loans next week.

The New Zealand dollar fell as low as 82.61 US cents in local trading and was at 82.81 US cents at 5pm down from 82.97 cents at 8am. The trade-weighted index dropped to 73.23 from 73.38.

The Frankfurt-based ECB will offer banks a second round of three-year loans on Feb. 28 and award them on Feb. 29. It lends banks as much money as they ask for against eligible collateral. At the first round of lending in December the ECB provided a record 489 billion euros to banks. It has also previously offered banks unlimited 12-month loans.

“I wouldn’t be surprised if we see markets treading water until then,” said Imre Speizer, market strategist at Westpac Banking Corp. Unlike in December the market “is not going to be so caught out this time” so it has already started pricing ECB’s lending in. “It will be a major risk event,” he said.

“We think the kiwi has now reversed - It has quite a bit further to run,” Speizer said.

Investors continue to mull the details of a second bail-out package for Greece dimming appetite for higher yields. Both the greenback and the euro have strengthen against the kiwi after European Union finance ministers handed Greece a 130 billion euro lifeline to avoid bankruptcy in March.

The package was secured on pledges for greater austerity and a 53.5 percent haircut for private bond investors, removing near-term uncertainty for the Mediterranean nation.

In the US, initial jobless claims and new home sales are set for release tonight.

The New Zealand dollar was little-changed on 77.87 Australian cents from 77.91.

The kiwi fell to 52.84 British pence from 52.95 pence and fell to 62.49 euro cents from 62.62 cents. It dropped to 66.46 yen from 66.67 yen.

(BusinessDesk)

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