The New Zealand dollar rose to its highest in more than five months against the euro after a report showed German inflation slowed to the lowest level in more than five years, increasing the prospect the European Central Bank will need to add further stimulus to prevent deflation.
The kiwi touched 64.68 euro cents, and was trading at 64.47 cents at 8am in Wellington, from 63.86 cents at 5pm yesterday. The local currency advanced to 76.95 US cents from 76.28 cents yesterday.
The euro is under pressure ahead of Greek elections later this month which may result in a left-wing government cancelling austerity measures and seeking to renegotiate its debt, which could see it exit the European common currency. Adding to the euro's woes, a report yesterday showed German inflation, harmonised for comparison with other European countries, fell to a 0.1 per cent annual rate in December, from 0.5 per cent in November and below economist expectations. The German reading comes ahead of Eurozone inflation data on Wednesday and raises the pressure on the ECB to announce further stimulus at its meeting later this month to ward off deflation.
"The euro remains under pressure amid expectations of ECB policy easing and political uncertainty in Greece," David Croy, senior rates strategist at ANZ Bank New Zealand, said in a note. "While this cross may be inflated to many, the lower German inflation levels have ensured the euro continues to lack support. This cross lifted as a result and will remain elevated today."
ANZ expects the kiwi to trade between 64.40 euro cents and 64.80 cents today.
