NZ dollar hits record high vs. euro as central banks meet

Thursday 5th July 2012

The New Zealand dollar hit a record high verse the euro after a report showed Germany's service industry unexpectedly shrank last month, adding to speculation that the European Central Bank will cut interest rates.

The New Zealand dollar rose as high as 64.25 euro cents, its highest since the 17-nation currency entered circulation in 2002. It traded at 64.11 euro cents at 8am up from 63.92 cents yesterday at 5pm. The kiwi was little changed on 80.36 US cents from 80.40 cents at 5pm.

Germany's service industries unexpectedly contracted in June. The nation's services PMI falling to 49.9 from 51.8 in May, according to London-based Markit Economics. A figure below 50 indicates contraction. That's helped underpin speculation ECB President Mario Draghi will cut rates by 0.25 points to 0.75 percent, according to the median forecast of economists in a Bloomberg survey when the bank meets to review borrowing costs on Thursday. The Bank of England is also preparing to meet on Thursday.

"The New Zealand dollar held firm overnight," said Mike Jones, market strategist at the Bank of New Zealand. "Tonight’s ECB and Bank of England decisions should set the tone for risk appetite and the ‘risk sensitive’ currencies," he said.

"This is particularly so given central bank stimulus is being relied upon to prop up the global economy," Jones said.

Jones is picking the kiwi could rise as high as 65 euro cents to 66 cents over the next couple of months.

The New Zealand hit a fresh two-and-half month high against the pound to 51.53 from 51.33 pence yesterday, that's the highest the currency has traded since April 25. The BoE is expected to raise its target for bond purchases by 50 billion pounds to 375 billion pounds tomorrow, according to the median estimate of analysts in a Bloomberg News survey.

There is no significant New Zealand data set for release today.

The New Zealand dollar was little changed on 78.16 Australian cents from 78.17 cents yesterday and largely unchanged on 64.11 yen from 64.18 yen. The trade weighted index was little changed on 72.60 from 72.57.

BusinessDesk.co.nz

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