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Kiwi falls against broadly stronger euro

Monday 21st February 2011

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The New Zealand dollar fell against the euro, which was boosted broadly by increased expectations that the European Central Bank will raise interest rates.

At 8am today the kiwi was buying 0.5555 euro, down from 0.5584 at 5pm on Friday, as the European currency benefited from news citing ECB policymaker Lorenzo Bini Smaghi as saying the central bank would be ready to tighten policy as price pressures mounted.

German data, which showed the largest monthly increase in producer prices since mid 2008, emboldened the stance that the ECB may hike interest rates within the next few months.

Talk that the ECB was buying Portuguese government bonds also lifted the euro, analysts said.

Last week, the euro rose 1.3% vs the US dollar, rising after two straight weeks of losses.

The greenback, a traditional safe-haven along with the Swiss franc, failed to capitalise on heightened geopolitical tensions in the Middle East.

Richard Franulovich, senior currency strategist, at Westpac in New York said the US dollar's weakness may be attributed to general low volatility across all asset classes, prompting investors to take on more risk.

The NZ dollar reached a one-week high around US76.50c on Saturday morning, slipping back to US76.20c at 8am today, slightly ahead of its 5pm Friday level.

BNZ currency strategist Mike Jones said that, broadly speaking, the NZ dollar against the greenback continued to be torn between the positive impact of strong and rising global commodity prices, and the negative impact of near-term weakness in domestic data.

The kiwi edged up to A75.23c at 8am today from A75.04c at 5pm on Friday, holding above the seven-week low around A74.85c touched on Friday morning.

The NZ dollar was also buying 63.29 yen at 8am today, little changed from its 5pm Friday level, while the trade weighted index edged down to 67.59 from 67.61.



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