NZ dollar hits multi-year high vs euro

Tuesday 12th July 2011

The New Zealand dollar rose to a 5-1/2-year high against the euro on fears that Italy could become the latest country caught up in the euro-zone debt crisis.

The kiwi rose from 0.5878 euro at 5pm yesterday to peak around 0.5930 shortly after midnight, then eased to 0.5906 euro at 8am today.

Against the US dollar the kiwi fell away further from the post-float high of around US83.80c reached on Saturday morning. It fell from US83.43c at 5pm to US82.77c at 8am, as the greenback benefited from global risk aversion.

Investors fear the euro-zone debt crisis will keep spreading and eventually affect the global economy, particularly the banks exposed to the debt.

The euro fell below $US1.40 for the first time since May and hit a record low against the Swiss franc as European officials met to discuss a second round of aid for Greece. Fears that Greece could soon default on its debt has made euro trading volatile since late spring.

Investors are anxious about the economic health of Italy, Europe's No 3 economy, and of Spain, analysts say. Borrowing costs are rising. The European funds available for rescue loans might not be enough to aid the larger economies if they need bailouts.

BNZ strategist Kymberly Martin said yesterday and overnight had been all about declining risk appetite with the NZ and Australian dollars both under pressure compared to the US dollar.

The NZ dollar was restricted to a narrow band against the aussie overnight and at 8am was buying A77.78c, slightly down from its 5pm level.

The kiwi fell to 66.46 yen at 8am from 67.38, while the trade weighted index dropped to 71.97 from 72.21 at 5pm.

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