NZ dollar rallies on Merkel's EU boost

The New Zealand dollar rose after German Chancellor Angela Merkel provided a boost to the euro-zone, signalling her conditional support to the European Central Banks bond buying programme.

The New Zealand dollar rose as high as 81.16 US cents overnight, trading at 80.97 at 8am up from 80.59 cents at 5pm yesterday. The trade weighted index increased to 72.95 from 72.81.

Merkel reiterated her commitment to working with the ECB to resolve the region's debt crisis and to help reduce the borrowing costs of indebted nations, in her first public comment on the turmoil in over a month.

As the leader of Europe's biggest economy, Merkel has been under increased pressure to ease bailout terms and allowed shared debt, while facing domestic pressure from her coalition partners to refuse any more aid for Greece.

"Markets have taken the news at face value - it's a good news story and the New Zealand dollar has rallied," said Stuart Ive, currency strategist at HiFX.

"Merkel is supposedly showing her allegiance to the ECB but it's what it doesn't say, the details - the bonds are under conditions which Spain and Greece don't like."

Spain will apply for aid at a meeting of finance minister in September, allowing the ECB to buy Spanish government debt in the secondary market once approval is won, Bloomberg reported.

In the US, the world's largest economy, residential building permits rose to an 812,000 annual rate in July, the highest level since August 2008, in another sign that the nation's flagging housing market may be set to rebound.

The number of Americans filing applications for unemployment benefits was steady last week, while housing starts declined 1.1 per cent to a 746,000 annual rate in July.

The news out of Europe helped push the kiwi higher "across the board," Ive said. "The kiwi is holding its own despite the fact we have seen more positive data out of the US, which usually talks down quantitative easing," pushing the New Zealand dollar lower.

The Federal Reserve's next policy meeting is scheduled for September 12.

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

The New Zealand dollar fell to 65.54 euro cents from 65.85 cent yesterday. The kiwi was little changed at 51.48 British pence from 51.43 pence. It gained to 77.03 Australian cents from 76.86 cents and advanced to 64.27 yen from 63.91 yen.