Kiwi dollar may fall after EU agreement

New Zealand dollar. Photo / NZ Herald

The New Zealand dollar may decline this week as investors absorb the weekend's European Union agreement to combat the region's debt crisis.

The kiwi dollar traded recently at 77.44 US cents, up from 76.72 cents on Friday. That's right in the middle of the currency's largely unchanged forecast range for this week of 75.5 cents and 80 cents, according to a BusinessDesk survey of six analysts.

The New Zealand dollar fell near a two-week low on Friday as markets spurned so-called risk-sensitive assets amid pessimism the EU leaders' summit would achieve concrete solutions to the region's ballooning debt.

The 27 leaders signed up to a Franco-German-led agreement over the weekend to provide tighter budget rules and an additional 200 billion euros to the region's war-chest. That's part of an effort to reassure investors European leaders are able to master the crisis as certain member-states struggle to deal their fiscal woes. The UK decided to remain outside the new framework.

"It's encouraging they got together around the table and agreed, which is a good first start," said Mike Burrowes, market strategist at Bank of New Zealand.

There are still unresolved questions and immediate problems, Burrowes said. "The risk sensitive AUD and NZD continued to take their cues from developments offshore."

The summit prompted rating agency Standard &Poor's to put 15 euro-zone members on notice of a threatened downgrade. The EU's AAA long term rating and the ranking of some of the region's largest banks including BNP Paribus SA, Commerzbank AG and Deutsche Bank AG could be lowered by S&P, tempering optimisms about the deal.

"The downgrade of the triple AAA, a lot of it is already factored in," said Burrowes, it's just highlighting what we already know. "In terms of a credit spread they (Europe) are already trading at worst levels than their ratings," he said.

The Reserve Bank of Australia deputy governor Ric Battellino will speak in Sydney this Wednesday. The New Zealand dollar has been mostly on a downward path against its Australian counterpart since mid-August and is currently trading at 75.83 cents, down from 80.77 cents in September.

China, the world's second-largest economy, is feeling the pinch too, announcing on Friday its export grow had eased to the slowest pace since 2009 at 13.9 per cent. Demand from China and Australia helped shield New Zealand from, the worst of the global financial crisis.

In a quiet week for domestic economic data, the Westpac consumer confidence survey is released this afternoon. It follows the ANZ-Roy Morgan consumer confidence survey last week which showed a 1.2 point decline to 105.3 in December.

New Zealanders wound back spending on credit and debit cards in November as the hangover from the Rugby World Cup set in. The value of total transactions fell 0.2 per cent to $5.41 billion, and dropped 1.3 per cent in core retail industries to $3.33 billion.

Statistics New Zealand released the Accommodation Survey for October this morning, with total guest nights falling 1.5 per cent as a slump in visitors using paid accommodation in Canterbury offset an influx of overseas visitors in the country for the Rugby World Cup. International guest nights rose 7.1 per cent while domestic declined 6.5 per cent, the figures show.

The food price index for November is released tomorrow and agricultural production statistics for June on Friday.