The New Zealand dollar rose to its highest level since November 18 and the Australian dollar climbed back above US$1 on perceptions the currencies are a relative safe haven as Europe grapples with its debt woes.
The New Zealand dollar rose to 76.48 US cents overnight, sitting at 76.01 cents just before 8am, up from 75.49 cents at 5pm yesterday. The Australian dollar was recently at US$1.002, climbing above US$1 for the first time in 1 ½ weeks.
Australia credit rating was lifted to AAA by Fitch ratings yesterday, the highest possible level, while the federal government announced A$6.8 billion of spending cuts to deliver a budget surplus by the middle of 2013. The Reserve Bank of Australia's benchmark interest rate is 4.5 per cent while New Zealand's is 2.5 per cent, compared to near zero in the US.
Australia's credit rating upgrade "will help create positive perceptions" of the two nations, said Michael Hollows, currency strategist at HiFX. "The kiwi and the Aussie are seen as safe haven flows as people look for places to park their money," he said.
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Investors took heart from developments in Europe yesterday, when finance minister agreed to release an 8 billion euro aid payment to Greece, part of the 110 billion euro package of support agreed with Athens last year. The joint IMF/EU payment is the sixth installment of loans to help Greece finance itself since being cut off from financial markets.
Italy sold 3.5 billion euros of bonds, showing investors are still willing to lend to the indebted nation, though it had to pay a record 7.89 per cent interest on the three year bonds, Reuters reported.
While there are signs of progress in Europe, investors are yet to see any meaningful answers to the problems, Hollows said.
In New Zealand, building consents data for October is due out today, which will provide an update on the nation's tepid housing market.
The kiwi fell to 75.97 Australian cents from 76.07 cents yesterday. It rose to 75.18 euro cents from 56.62 cents yesterday, and was at 48.81 British pence from 48.72 British pence and 59.31 yen from 58.97 yesterday.
The trade weighted index rose to 76.18 from 75.49.