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NZ dollar rises against euro after higher European inflation buoys confidence about growth

Monday 2nd December 2013

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The New Zealand dollar rose against the euro after higher European inflation dented expectations that the European Central Bank may have to ease monetary conditions further to stimulate growth.

The kiwi touched 60.02 euro cents over the weekend and was trading at 59.82 cents at 8am in Wellington from 59.47 cents at the 5pm market close on Friday. The local currency rose to 81.31 US cents from 81.25 cents at the New York close and 80.99 cents in Wellington on Friday.

The European common currency strengthened on expectations higher European inflation and the first drop in the unemployment rate since early 2011 may take the pressure off the European Central Bank to push interest rates lower. The bank cut rates last month following a report showing high unemployment and low inflation.

"Friday's stronger than expected Eurozone CPI (core 1 percent versus 0.9 percent expected) means a follow-up ECB rate cut this week now looks very unlikely," Mike Jones, currency strategist at the Bank of New Zealand, said in a note. "The euro is like to maintain a positive bias as a result."

In New Zealand third quarter terms of trade data is published today at 10:45am.

In China, the HSBC manufacturing PMI for November will be closely watched for signs of how Asia's largest economy is tracking. The official Chinese manufacturing PMI for November, released at the weekend, held steady at 51.4, stronger than expected.

Tonight, all eyes will be on the US November ISM manufacturing data.

The New Zealand dollar advanced to 49.66 British pence from 49.48 pence on Friday on optimism growth in the UK economy will lead to higher interest rates. The kiwi rose to 83.29 yen from 82.98 yen on Friday after weaker than expected Japanese industrial production data.

The local currency slipped to 89.02 Australian cents from 89.21 cents on Friday ahead of the Reserve Bank of Australia's decision on its benchmark interest rate tomorrow.

The trade-weighted index advanced to 76.46 from 76.17 on Friday.

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