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NZ dollar falls below 74 cents on Ireland, Euro debt woes

NZ dollar falls as Ireland downgraded 5 notches, Europe debt fears re-emerge

By Paul McBeth

Dec. 20 (BusinessDesk) – The New Zealand dollar fell back below 74 U.S. cents as Moody’s Investors Service slashed Ireland’s credit rating five notches, sparking fresh concerns about Europe’s sovereign debt crisis.

Moody’s surprised markets by the extent of its downgrade to Ireland’s credit rating, which kept its investment grade as it tumbled to Baa1 from Aa2. Fears about Europe’s debt woes resurfaced, and British lender Lloyds Banking Group had to double its provision for bad Irish loans. At a summit in Brussels, European Union leaders agreed to implement a permanent bail-out mechanism once the current fund expires in 2013, just meeting the bottom of the market’s expectations.

European leaders aren’t addressing their debt problems fast enough and “things are going from bad to worse,” said Mike Jones, strategist at Bank of New Zealand. “European equities closed lower and risk appetite dried up, which wasn’t good for growth sensitive currencies like the New Zealand dollar.”

The kiwi dropped to 73.52 U.S. cents from 74.06 cents on Friday in New York, and declined to 66.72 on the trade-weighted index of major trading partners’ currencies from 66.84. It fell to 61.71 yen from 62.16 yen last week, and decreased to 74.34 Australian cents from 74.72 cents. It rose to 55.81 euro cents from 55.60 cents on Friday, and was little changed at 47.33 pence from 44.37 pence.

Jones said the currency may trade between 73.30 U.S. cents and 74.20 cents today with little on the horizon until local current account and gross domestic product data later this week.

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New Zealand’s economy probably grew 0.2% in the three months ended Sept. 30, according to a Reuters survey of 15 economists, though analysts are downbeat on the data and aren’t ruling out a contraction in the period. Separately, the current account deficit is forecast to have widened to 3.4% of GDP in the same period.

Today’s BNZ Business New Zealand performance of services index will probably hover around the 50 mark, indicating expansion in the sector, as it follows the trend in recent months.


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