NZ dollar gains as markets wait for S&P reply to Euro plan

New Zealand dollar. Photo / NZ Herald

The New Zealand dollar gained as markets wait to see how rating agency Standard & Poor's will respond to the weekend's European Union agreement to combat the region's fiscal woes, after it last week threatened to slash the credit ratings of 15 European nations, including Germany and France.

The kiwi dollar rose to 77.27 US cents just after 8am from 76.72 cents in late New York trading on Friday.

The 27 leaders of EU nations 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 with ballooning public debt, which prompted S&P to put 15 euro-zone members on notice of a threatened downgrade. The UK decided to remain outside the new framework.

Bloomberg reported the EU's AAA long term rating and the ranking of some of the region's largest banks including, BNP Paribas SA, Commerzbank AG and Deutsche Bank AG could by lowered by Standard & Poor's, tempering optimisms about the deal. Moody's Investors Service ratings agency downgraded three French banks, with their creditworthiness hurt by the fragile operating environment for European financials.

"The ratings agencies will hold the sway," said Tim Kelleher, head of institutional FX sales NZ ASB Institutional. "Markets didn't dislike the news but they will wait and see what the ratings agencies do," and the headlines are already saying it is not enough, which is keeping a cap on the kiwi, he said.

Last week ended on a positive note in equity markets, with the Standard & Poor's 500 Index up 0.9 per cent on the week. The Dow Jones Industrial Average advanced 1.4 per cent and the Nasdaq Composite Index edged 0.9 per cent higher.

The kiwi dollar fell to 75.73 Australian cents from 75.88 on Friday. The yen rose slightly to 59.92 yen from 59.56 yen and gained to 57.84 euro cents from 57.59 cents. It was up to 49.33 British pence from 49.13 pence.

The trade weighted index was up 68.54 from 68.17 at 5pm on Friday.