NZ dollar up US 2c on Euro debt deal

Photo / Dean Purcell

The New Zealand dollar surged nearly two US cents after Europe came up with a three-pronged economic plan good enough to placate markets and courted China for support.

The kiwi dollar was at 81.94 US cents at 8am from 80.33 US cents at 5pm yesterday having touched an 82.08 cent overnight high which nudged the level on Sept. 20 from which it fell to multi-week slump.

The currency had rallied from 79.50 cents yesterday morning after the Reserve Bank held the official cash rate at 2.5 per cent and after European leaders cut a credible deal. Europe's policymakers agreed that banks holding Greek debt will accept a 50 per cent loss, the euro-zone's bailout fund will be boosted to 1 trillion euros and banks must also raise more capital to protect them against losses resulting from any future government defaults.

Equities, commodities and the euro rallied after French President Nicholas Sarkozy spoke with his Chinese counterpart, who is reported to be willing to help China's biggest market, though there is no detail on how.

"You can't sit back and ignore a 3 per cent rally on Wall Street," said Alex Sinton, senior dealer at ANZ New Zealand.

Still, he was scratching his head at the amount of optimism the deal had engendered.

"I don't think this is the final cut. At the end of the day there is a long way to go for Europe," he said.

Risk also suddenly became more acceptable to investors after the Commerce Department reported the US economy expanded at its fastest pace in a year in the third quarter. US gross domestic product rose at a 2.5 per cent annual rate in the third quarter when the market was expecting 2.3 per cent.

A light news diary in Asia today suggested that the euphoria in markets could continue throughout the Asian time zone though there will be some assessment of whether the extent of the rally is warranted.

BNZ strategists expect the kiwi will end the year at around 83 US cents.

The kiwi slipped to 76.38 Australian cents from 76.69 cents yesterday, and gained to 62.22 yen from 61.17 yen. It climbed to 57.67 euro cents from 57.56 cents yesterday, and rose to 50.82 British pence from 50.23 pence yesterday.

The trade-weighted index climbed to 70.28 from 69.65.