New Zealand to Raise Rates
The dollar fell against the euro as US stocks rose prompting demand for riskier assets. New Zealand’s Kiwi dollar rose after Reserve Bank Governor Alan Bollard said the central bank would raise rates in the middle of 2010. The pound fell against both the US dollar and the euro after Chancellor of the Exchequer Alistair Darling imposed a 50% tax on bonuses for bankers and said he would raise income taxes. He also predicted larger than expected deficits. The Standard & Poor’s 500 Index rose 0.3% after falling as much as 0.6%. The Kiwi rose 1.8% against the US dollar to 71.99 U.S. cents after the remarks by the Reserve Bank Governor.
Darling’s Bad News
The pound fell against the 16 most traded currencies after Darling told British legislators that the UK deficit will be 611 billion pounds ($990 billion USD) and said the UK economy would shrink by 4.75% this year. Ian Stannard of BNP Paribas SA said, “Sterling still looks vulnerable. There are no real measures here to start to tackle concerns that financial markets and investors are likely to have.” Investors were also concerned by statements by Moody’s Investors Service that said the UK and US ratings may “test the Aaa boundaries” due to massive deficits and declining public finances. UK debt will account for 89.3% of UK gross domestic product in 2010. Most analysts believe that the Bank of England’s Monetary Policy Committee will leave rates at a record low of 0.5% and will continue its asset-purchase program at 200 billion pounds.
Canada Leaves Rates Untouched
Yesterday the Canadian dollar, affectionately called the ‘loonie’ fell to its lowest in ten days after Canada’s central bank left rates at record lows. The bank of Canada said the loonie which has gained 15% against the US dollar this year could hinder Canadian economic growth. Michael Leavitt of MF Global Canada Co stated, “We have the four majors working against the Canadian dollar today. Lower crude, gold and equities, as well as the Bank of Canada staying firm on holding rates until the end of the second quarter of 2010.”
