NZD Goes Up on EFSF Intervention Guideline

The ever-shifting mood among Forex market participants, caused by the uncertain prospects for a resolution of the European struggle with debt, translates into violent swings and an unpredictable behavior of currencies. The behavior of the New Zealand dollar wasn’t very different, yet the currency managed to gain as there was a reason for optimism.

The main theme for talks among investors is the European Union summit this weekend and the possible boost of the European Financial Stability Facility. The question whether the nations of the EU would agree to give more power to the bailout fund or not bothers traders. It’s likely the European Central Bank will be asked to contribute a substantial portion for the newly expanded fund and the central bank will most certainly oppose such a proposition. The ECB already said that the European governments should try to resolve their problems themselves, and not ask for the help of the central bank every time.

So why a “riskier currency” such as the kiwi (the nickname of NZD) may rally? One of the possible answers is the EFSF guideline. The rescue facility will be allowed to buy bonds on secondary markets. The ECB already has made such an arrangement, but now the burden is shared with the EFSF. Perhaps now the central bank will be more cooperative with Europe’s chief after they showed willingness to share the responsibility of dragging the EU out of the debt crisis?

NZD/USD traded near 0.7950 today as of 1:46 GMT after rising yesterday from 0.7917 to 0.7933. NZD/JPY also rose, going from 60.90 to 60.98. Meanwhile, EUR/NZD went lower to 1.7334 from the opening rate of 1.7349, following the decline on the previous trading session.

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