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NZ dollar rises above 66 euro cents for first time as euro confidence dips

Tuesday 31st July 2012

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The New Zealand dollar rose above 66 euro cents for the first time since the currency entered circulation in 2002 after euro-zone economic confidence fell to a three-year low and traders awaited European Central Bank's monetary policy review.

The kiwi dollar rose as high as 66.14 euro cents from 65.72 cents at 5pm in Wellington yesterday and recently traded at 65.93 cents. The local currency edged up to 80.85 US cents from 80.74 cents.

An index of economic confidence in the euro area fell to 87.9 this month, the lowest level since September 2009, from 89.9 in June, according to the European Commission. That added to gloom about a region mired in a debt crisis that may prompt the ECB to announce plans to buy sovereign bonds this week after president Mario Draghi last week said he'd do whatever it took to preserve the euro.

"The latest Euro zone economic confidence figures suggested the European recession is worsening," said Mike Jones, currency strategist at Bank of New Zealand. "There's no doubt that positive NZ-EU relative growth and interest rate differentials are big cyclical tailwinds for the NZD/EUR. There is room for further mild appreciation in the NZD/EUR, but not a lot."

Ahead of the ECB, the US Federal Reserve begins its two-day policy meeting on Tuesday in Washington DC. Economists expect policymakers may push out the timeframe for near zero interest rates beyond 2014.

The National Bank Business Outlook is scheduled for release in New Zealand today, which will give a snapshot of how confidence is holding up in an economy experiencing tepid growth.

The trade-weighted index was little changed at 72.83. The kiwi dollar weakened to 76.95 Australian cents from 77.18 cents and traded at 51.47 British pence from 51.39 pence. The local dollar slipped to 63.20 yen from 63.27 yen.

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