NZ dollar drops to month-low vs euro

The New Zealand dollar fell to a month-low versus the euro after a European Central Bank board member backed action to help lower borrowing cost for struggling euro-zone nation's, which boosted optimism the sovereign debt crisis will be contained.

The New Zealand dollar fell as low as 64.93 euro cents in the Northern Hemisphere session, the lowest since July 23. It traded at 65 cents at 8am down from 65.58 cents at 5pm yesterday. The kiwi was little changed at 81.04 US cents from 81.06 cents yesterday, while the trade-weighted index dropped to 72.89 from 73.06.

The euro hit a six-week high US$1.2488 after ECB board member, Joerg Asmussen, who is reported to be close to German Chancellor Angela Merkel, signalled support for a plan where the central bank would buy of Spanish and Italian debt in a bid to shore up the region's more heavily indebted nations.

Central bank policymakers aren't scheduled to meet until September, when it's expected they'll announce the limits on government bond yields to help contain the region's debt crisis.

"There is more downside in the kiwi/euro cross," said Mike Jones, market strategist at Bank of New Zealand. "These moves by the ECB are being regarded as game changers by the market."

European leader returning from holiday will meet in Paris on Friday for the first time in about a month to discuss measures to support Greece and prevent Italy and Spain from being shut out of the euro.

Investors are preparing for the minutes from last week's Federal Open Market Committee meeting, with traders reluctant to change their bets before the central bank summit in
Jackson Hole, Wyoming on August 31. A string of better-than-expected data has eroded speculation the Fed will increase its monetary stimulus.

"The debate of QE3 continues to rage on," Jones said. "Bernanke's speech at Jackson Hole will provide the markets with a lot more guidance."

In New Zealand, earnings season is now well under way with the biggest companies on the bourse - telecommunications company Telecom and construction company Fletcher Building - due to report in the next two days. There is no significant data set for release today.

The New Zealand dollar edged up to 77.33 Australian cents from 77.28 cents yesterday at 5pm. It dropped to 51.34 British pence from 51.53 pence and was little changed at 64.21 yen from 64.28 yen.