The New Zealand dollar is once again marching higher against the US dollar and the euro, but the market is not pricing in risk that another Greece-style flare-up could quickly send it sharply down, a foreign exchange specialist said.

Singapore-based Mansoor Mohi-uddin, the managing director of foreign exchange strategy for UBS Ag - one of the world's biggest currency traders - said that the Australian and New Zealand dollars were once again in vogue because of Australasia's relatively high interest rates. However, he said both currencies were vulnerable to what he called "generalised risk aversion".

The New Zealand dollar is trading near two-month highs of just over US80c - having dipped to around US75c early in the year. Last week, the European Central Bank cut its key interest rate by 25 basis points to a record-low 0.75 per cent.

In its own version of "quantitative easing" the Bank of England raised its asset-purchase target by £50 billion to £375 billion.


Around the same time, China unexpectedly cut its key interest rate for the second time in a month.

These moves bode well for the New Zealand dollar and the other high yielders - the aussie dollar, Brazilian real, the South African rand and the Turkish lira - which also tend to perform strongly when the markets are perceived to be stabilising, said Mohi-uddin.

These currencies had become barometers of risk - firmer when world markets looked to be stabilising but weaker on risk aversion, particularly in response to more bad news from the debt-laden parts of Europe.

He said generalised risk aversion was probably going to knock the Australian and New Zealand dollars down again.

"What we have been telling clients is that in the very near term, that if they see central banks easing, then that will probably help support the kiwi and the aussie at these levels," he said. "But we are telling clients not to buy at these levels because we are worried that the eurozone crisis will worsen again," he said.

"As it worsens, it will probably push global stock markets down and global commodities prices down, and that will then push the aussie and the kiwi back down to the lows that we saw earlier," he said.

The market has moved on from Greece for now, but the coalition government may encounter trouble as it tries to implement tough economic reforms after five years of recession, he said.

The market's focus for now is the larger economies of Spain and Italy, which last week saw their bond yields spike higher.

After the United States lost its AAA ratings status from Standard and Poor's last year and Europe's long and drawn-out debt crisis, investors looking for highly rated bonds had to look elsewhere.

Mohi-uddin said many had turned to Australia, which still maintains AAA rating, but also to Canada, the United Kingdom and Sweden. While New Zealand is not AAA rated, it has nevertheless benefited from the trend, Mohi-uddin said.

Aside from the interest rate and risk aversion themes, he said, both the aussie and the kiwi had become alternatives for central banks looking for alternative, albeit minor, reserve currencies.