Euro holds slim gains, kiwi falls on RBNZ

By Anirban Nag

SYDNEY (BestGrowthStock) – The euro steadied on Thursday, pulling away from one-year lows, while the New Zealand dollar fell on profit taking after its central bank kept interest rates unchanged and issued a less-than-hawkish outlook for policy.

The New Zealand dollar fell to $0.7170, from around $0.7200 late in New York, moving away from a three-month highs of $0.7257 hit last week. It had rallied on speculation that the Reserve Bank of New Zealand (RBNZ) would prepare the ground for rate hikes as early as June.

instead, the RBNZ said it would remove some of the emergency monetary stimulus in the “coming months,” disappointing those who were expecting a more explicit statement. It also said the scale of any tightening was likely to be less than in the past.

“The RBNZ is hinting at the start of a tightening cycle but a more modest and tempered one than in the past,” said Su-lin Ong, senior economist at RBC Capital. “It was a balanced statement with cautious undertones.”

On the other hand, the Australian dollar held gains at around $0.9240, having jumped over 1 percent in the previous session, on speculation the Reserve Bank of Australia (RBA) will raise interest rates at its May policy meeting next week.

That talk got a boost after columnist and central-bank watcher Terry McCrann wrote that a rise was now all but certain after inflation for the first quarter came in higher than expected. McCrann has a mixed record on calling moves but has been right enough times for the market to pay attention.

Swaps rates have jumped with one-month overnight index swaps at 4.3535 percent, up 4.2750 late on Wednesday, and pricing in a 60 percent chance of a hike next week.

In early Asian trade, the euro was up at $1.3206, from $1.3195 late on Wednesday when it rallied after hitting a one-year low at $1.3114 on electronic trading platform EBS.

It rose as investors absorbed a downgrade of Spain’s rating, choosing instead to draw comfort from the Federal Reserve’s optimism about growth.

The euro has fallen below long-term support levels in recent months, including $1.3405, a 61.8 percent Fibonacci retracement of its rally from its 2008 trough to its 2009 peak.

For now, support is seen around $1.31, the 76.4 percent of its move up from a low of around $1.2440 in March 2009 to a high of $1.5140 in November last year.

The market is heavily short on the euro, focusing on Greece’s budget woes and sovereign risk in the euro area. Those worries intensified after Standard & Poor’s downgraded Spain’s credit rating by one notch to AA, citing a more protracted period of sluggish economic growth than previously expected.

But the downgrade came amid news that euro zone/International Monetary Fund aid package for Greece was imminent and may be worth more than previously expected.

The aid package for Greece will be worth 100 billion euros to 120 billion euros ($132.6 billion-$158.8 billion) over three years, according to IMF Managing Director Dominique Strauss-Kahn.

The dollar was slightly weaker on the yen at 94.02 yen but volumes are likely to be light with Tokyo shut for Golden Week holidays. The dollar gained more than 1 percent on Wednesday, boosted by a rise in risk appetite and higher U.S. Treasury yields.

At the conclusion of its two-day rate setting committee meeting, the Fed maintained the “extended period” language and slightly upgraded some of their economic forecasts. That saw risk assets and higher-yielding currencies respond positively.

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(Editing by Wayne Cole)

Euro holds slim gains, kiwi falls on RBNZ