JASON KRUPP Last updated 08:39 09/11/2011
The New Zealand dollar rose against the greenback in early morning trade, breaking out of its range trend on news that Italian Minister Silvio Berlusconi had agreed to step down after the passage of the country's budget.
The kiwi dollar recently traded at US79.72 cents, up from 79.37c yesterday, and rose to 69.56 on the trade weighted index of major trading partners' currencies from 69.52 previously.
Berlusconi's resignation comes after his party failed to muster a majority on a routine parliamentary ballot, further eroding support for the embattled prime minister.
That proved to be a shot in the arm for equity markets, with the Standard & Poor's 500 Index trading 0.6 per cent higher at 1268.96 in afternoon trade, having pared early losses, and Europe's Stoxx 600 Index closed 0.9 per cent higher at 240.50.
"What's happening in Italy is encouraging in that you've got to hope that they'll get a government that will pass the fiscal austerity measures needed to get the country on track," said Mike Burrowes, a market strategist at Bank of New Zealand.
Those measures are desperately need if the heavily indebted nation is to soothe nervous investors, with yields on 10-year Italian government bonds recently trading at 6.797 per cent, their highest level since the country joined the European Union. Economists consider 6 per cent the threshold for long term affordability.
"Bond yields at these levels are not sustainable," Burrowes said. "If they stay where they are, Italy will have to go to the IMF to get a loan."
On the crosses, the kiwi dollar recently traded at 76.82 Australian cents, little changed from 76.80c yesterday, was unchanged at 61.92 Japanese yen. It fell to 57.59 euro cents from 57.68 euro cents yesterday, and treaded water at 49.45 pence from 49.48 pence previously.
Datawise, markets will be eagerly awaiting the release of the October's consumer inflation, retail sales and industrial production numbers out of China, with investors will be looking to see if the world's second biggest economy is headed for a hard landing.
The kiwi dollar may trade between a range of 79.20 cents and 80.20 cents, Burrowes said.