NZ dollar hits five year high against euro

Monday 10th January 2011

The New Zealand dollar rose to its highest level against the euro in five years, as the European debt crisis lurched on.

The kiwi peaked around 0.59 euro on Saturday morning, its highest level against the European currency since December 2005. By 8am today the NZ dollar was at 0.5886 euro, up from 0.5834 at 5pm on Friday.

The euro hit its lowest level against the US dollar in nearly four months, as investors brace for upcoming bond sales from the more debt-stricken euro zone countries.

Portugal, widely seen as the next euro zone state that could need a bailout after Greece and Ireland, will lead debt auctions from European nations this week.

Last week, risk premiums on Portugal's 10-year government bonds over benchmark German bunds rose 15 basis points to 4.33 percentage points, while those on 10-year Spanish bonds over bunds widened. The five-year cost of insuring Portugal's debt against default rose by 15 basis points to 540 basis points.

"The rising yields at debt auctions in the euro zone will continue to spook investors for a while, and it's best to stay away from peripheral stocks such as Spanish and Portuguese banks until mid-year, when the crisis should ease," said Arnaud Scarpaci, fund manager at Agilis Gestion in Paris.

The NZ dollar was at US75.90c at 8am today, similar to the Friday evening level, after an erratic time early on Saturday as markets digested jobs news out of the US.

The US Labour Department reported US non-farm payrolls increased 103,000, below economists' expectations for gains of 175,000 jobs, but unemployment dipped to 9.4%, the lowest level in more than 1-1/2 years. Job gains from the month before were revised upwards strongly.

The kiwi was little changed against the Australian and Japanese currencies, buying A76.30c and 63.18 yen at 8am today. The trade weighted index was up to 68.98 from 68.82 at 5pm on Friday.

NZPA

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