Monday, November 22, 2010

Australian, N.Z. Dollars Weaken as Ireland Debt Problems Damp Yield Demand

The Australian and New Zealand dollars fell after the Irish government called elections and Moody’s Investors Service said it may announce a “multi-notch” downgrade of the European nation.
Australia’s currency weakened for a third day versus the yen on concern Ireland’s debt crisis will lead to contagion to other European nations such as Portugal and Spain, damping demand for higher-yielding assets. Both South Pacific currencies also dropped as Asian stocks and commodities including oil and copper declined. 

“Ireland has negative consequences for the whole euro zone and that’s why the euro is being punished,” said Imre Speizer, a market strategist at Westpac Banking Corp. in Wellington. The Australian and New Zealand dollars will trade with “a mild negative tone,” he said. 

Australia’s currency declined to 82.20 yen as of 3:08 p.m. in Sydney from 82.37 yen in New York yesterday. The so-called Aussie fell 0.3 percent to 98.61 U.S. cents. New Zealand’s dollar slipped 0.2 percent to 64.21 yen, and lost 0.2 percent to to 77.03 U.S. cents. 

Ireland’s Prime Minister Brian Cowen announced he would seek an election yesterday after the Green Party said it would pull out of his coalition. He said the vote will come early next year after passage of a 2011 budget. 

Hewlett-Packard Co., based in Palo Alto, California, said yesterday it may reconsider its investment in Ireland should the nation increase its 12.5 percent company tax rate as part of a deal to secure aid from the European Union and International Monetary Fund. 

‘Largely Unconvinced’ 

“Markets remain largely unconvinced about the positive impact of the Irish bailout,” Valentin Marinov, a currency strategist at Citigroup Inc. in London, wrote in a research note. The “controversial issue” of corporate taxes added to “concerns that the rescue package negotiations could be protracted,” Marinov said.
The extra yield investors demand to hold Irish, Spanish and Portuguese 10-year debt rather than German bunds rose yesterday. 

Declines in the New Zealand dollar were tempered after Moody’s Investors Service said the government’s finances were “relatively strong.” The nation’s performance during the global financial crisis “reinforced” its Aaa rating for New Zealand, Moody’s said. 

“Overall the debt levels are still lower than the majority of countries we rate Aaa,” said Steven Hess, senior credit officer in New York for Moody’s. “We see government finances as relatively strong, even though they are not as strong as they were in an absolute sense.” 

Credit Rating 

The so-called kiwi slumped 0.9 percent versus the dollar yesterday after Standard & Poor’s lowered its credit-rating outlook for New Zealand to negative. 

New Zealand company executives kept their expectations for inflation unchanged, a survey conducted for the central bank showed. Inflation will average 2.6 percent in two years’ time, according to the 78 business managers surveyed. The results were published on the Reserve Bank of New Zealand’s Web site

Australian bond futures rose, with the 10-year contract for December delivery climbing to 94.53 on the Sydney Futures Exchange from 94.48 yesterday. The implied yield on the futures fell five basis points to 5.48 percent. 

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