WSJ:New Zealand Dollar Rallies After EU Summit News Pleases
WELLINGTON--The New Zealand dollar rallied against the greenback Friday afternoon on positive news from the summit of European Union leaders, leaving the currency sharply higher on the day although it was little changed from a day earlier following overnight losses.
EU leaders announced an opening up of access to the block's two bailout funds, the European Financial Stability Facility and the European Stability Mechanism, for euro-zone countries not already receiving assistance, in a move aimed at stabilizing volatile markets.
This prompted a sharp rise in the euro against the U.S. dollar, and the New Zealand dollar followed suit, reaching a high of US$0.7963 before falling back.
"The market had very low expectations (for the summit) so it was always going to surprise to the upside and we also have to bear in mind that locally, particularly in Australia,...they have massively priced in to the (interest rate curve) that the euro zone is going to fall over," HiFX Senior Trader Stuart Ive said.
He added that the market was now looking for more detail from the agreement and this could set the tone going forward.
The New Zealand dollar had been trading lower prior to the EU leaders press conference as investors had positioned themselves for disappointment, Bank of New Zealand currency strategist Mike Jones said in a note.
There was little local data to provide cues for the New Zealand dollar, with building consents having limited impact on the market.
Statistics New Zealand said residential building consents fell 7.1% on the month but were down just 0.4% if volatile apartment consent numbers were excluded.
"Abstracting from monthly volatility, the trend in residential work remains upwards and we expect consent issuance to continue strengthening over the remainder of the year," ANZ economist Mark Smith said in a note.
New Zealand government bonds fell while interest rate swaps rallied strongly as market moved out of safe-haven assets and markets reassessed interest rate tracks following the news from the EU Summit, a local bond trader said.
