NZ dollar highest vs euro in nearly six months

Thursday 7th July 2011

The New Zealand dollar rose to its highest level against the euro in nearly six months, as a rise in interest rates in China added to global growth concerns.

The kiwi rose from 0.5731 euro at 5pm to peak around 0.5785 early today, and by 8am was still at high levels, buying 0.5771 euro.

The NZ dollar was restricted against the greenback to a range between about US82.90c and US82.40c and at 8am was at US82.58c. It was also at A77.28c against the Australian dollar, similar to its 5pm level.

Investors became more cautious after China raised rates for the third time this year, making clear that taming inflation remains a top priority even as its vast economy pauses.

That raised serious worries about the sustainability of China's historic economic expansion, a key engine of the broader global recovery, analysts said.

BNZ currency strategist Mike Burrowes said the NZ dollar had been remarkably resilient yesterday and overnight, despite the general risk-off mood.

While the kiwi had fallen back slightly against the US dollar overnight, it remained well supported, and he was hearing of ongoing Asian demand for the NZ dollar.

China's rate hike weighed on an already soft euro dogged by renewed concerns of sovereign debt contagion after Moody's downgraded Portuguese debt by four notches, saying the country may need a second round of official financing before it can return to capital markets.

Investors sold the single currency after spreads of Portuguese, Spanish and Italian government bond yields over their German counterparts widened in European trade. Heightened concerns about funding also caused Portuguese credit default swaps to jump.

The US dollar sustained losses against the yen after a report showed sluggish growth in the US services sector in June.

The NZ dollar edged lower to 66.83 yen at 8am from 67.01 at 5pm, while the trade weighted index was a little higher at 71.38 from 71.34.

NZPA

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