Cyprus contagion fear spooks markets

20:19, Mar 25 2013

The New Zealand dollar traded up slightly against the greenback this morning, but has continued its retreat from last week's highs on news the European Union's bailout of Cyprus would be used as a template for future rescue deals.

The kiwi recently traded at US83.57 cents, up from US83.46c at 5pm yesterday.

The Trade Weighted Index of major trading partners' currencies remained stable at 76.40.

Yesterday Cyprus clinched the deal with international lenders for a 10 billion euro (NZ$15b) bailout that will shut down its second-largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians.

The plan, swiftly endorsed by eurozone finance ministers, will spare the east Mediterranean island a financial meltdown.

Westpac Banking Corporation market strategist Imre Speizer said the market was "spooked" by comments from European politicians that the Cypriot-style bailout was a template for future eurozone rescue packages.

"Obviously the European Union was not as secure as once thought," he said, adding there were fears of contagion, which would prompt people to remove their money from the eurozone, and put it somewhere safer.

While the Cypriot crisis was mostly over, it was worth keeping an eye on Europe's teetering economies, especially Portugal, Spain, Greece, and Italy, he said.

Closer to home the New Zealand trade balance would be released today, but was unlikely to have an impact on the market.

Across the ditch the Reserve Bank of Australia's governor was due to give an address today, which could cause some movement in the Australian dollar, with a possible knock-on effect on the kiwi Speizer said.

On the crosses the kiwi was at A79.86 cents this morning, slightly down from A79.89c at 5pm, and at 64.94 euro cents, up from 64.05 euro cents last night.

The kiwi recently traded at 78.58 Japanese yen, down from 79.13 yen last night, and at 55.02 British pence, up from 54.75p.

Speizer expected the kiwi to trade between US83c and US83.70c during the day.