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NZ dollar hits 12-week high vs euro as debt concerns deepen

Wednesday 1st December 2010

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The New Zealand dollar rose to a 12-week high against the euro as investors' concerns about the region's indebtedness heighten.

The euro dropped 0.8% to $1.3009 against the greenback after the Bank of Portugal knocked investor sentiment, saying lenders face an "intolerable risk" if the country is unable to shore up its balance sheet. Speculation that several large German lenders are struggling with liquidity and that Standard & Poor's was close to downgrading France's sovereign credit rating dented investor confidence further. European Central Bank President Jean Claude Trichet tried to calm the situation, saying investors were underestimating policy makers' determination to bolster the region's stability.

"The euro was hit pretty hard last night - there was massive selling of euro in Asia yesterday which has proven to be quite prophetic," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional. The kiwi/euro "cross is vulnerable to the upside and might go up towards 58 (euro cents) again."

The kiwi climbed to 57.33 euro cents from 56.84 cents yesterday, and was unchanged at 74.53 US cents. It gained to 68.13 on the trade-weighted index of major trading partners' currencies from 68.04 yesterday, and fell to 62.38 yen from 62.66 yen. It was little changed at 77.51 Australian cents from 77.43 cents yesterday, and slipped to 47.88 pence from 47.92 pence.

Kelleher said the currency may trade between 74.25 US cents and 74.75 cents today with little in the way of local data likely to push it around until American employment data on Friday.

Upbeat US data stoked investors' appetite for the greenback after manufacturing and consumer confidence data beat expectations. The Dollar Index, a measure of the greenback against six major currencies, rose 0.4% to 81.19, the highest level since September 20.

Today's release of Australian third-quarter gross domestic product data will probably show Australia's economy grew 0.5% in the period, taking the annual pace to 3.5%.

Today's ANZ Commodity Price Index will show how the price of locally produced raw materials tracked last month ahead of Fonterra Cooperative Group's online milk powder auction on Wednesday in the US.

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