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Dollar gains vs euro after German coalition talks break down

NZ dollar gains vs euro after German coalition talks break down

By Rebecca Howard

Nov. 20 (BusinessDesk) - The New Zealand dollar gained against the euro after German coalition talks broke down, raising concerns about Chancellor Angela Merkel's political future and the ramifications on the wider regional economy.

The kiwi rose to 58.03 euro cents as at 5pm in Wellington from 57.64 euro cents as at 8am and 57.81 cents last week. It traded at 68.11 US cents from 68.06 cents as at 8am, having touched a 17-month low 67.79 cents in New York on Friday.

The euro came under pressure in Asian trading and is likely to fall further when Europe opens after German leader Merkel said efforts to form a three-way coalition government had failed. The pro-business Free Democrats unexpectedly pulled out after more than four weeks of negotiations with Merkel’s conservative bloc and the Greens, citing irreconcilable differences, according to Reuters. Germany is the Europe's biggest economy and internal political instability typically weighs on investor sentiment towards the regional bloc.

Martin Rudings, senior dealer foreign exchange at OMF in Wellington, said the kiwi dollar gains against the euro during the Asian trading session may be short-lived if risk aversion spreads and that the local currency will likely stay under pressure against the greenback.

"Tonight there is a chance the euro could go a bit lower and it might drag the kiwi with it," he said. The kiwi has presented itself as a "pretty weak currency and it won't take much - even if it is someone else's problems - for it to follow."

Rudings said he is now targeting 67.40 US cents as the currency remains technically weak after breaking through solid support at 68.20 cents. There may be some offshore hedge funds that are of the view the "kiwi trade has matured," and are opting to sell, he said. Also, the rate differential is narrowing now the US is lifting rates and "that's taken away a lot of support for the kiwi dollar."

The trade-weighted index rose to 72.27 from 71.90 on Friday in New York. The kiwi traded at 90.15 Australian cents from 90.11 cents on Friday in New York and was unchanged at 51.59 British pence from Friday. The local currency increased to 4.5186 yuan from 4.5153 yuan and traded at 76.29 yen from 76.39 yen.

New Zealand's two-year swap rate was unchanged at 2.15 percent while 10-year swaps fell 1 basis point to 3.11 percent.


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