NZ dollar falls on Portugal downgrade

The New Zealand dollar fell against the greenback, while remaining within its recent range, after Portugal's credit rating was cut to junk status and a Chinese interest rate hike sapped momentum from growth currencies.

Europe and its heavily indebted member states was again the focus of markets overnight, after Moody's Investor Service cut Portugal's credit rating to Ba2, or junk, from Baa1, and placed it on negative outlook.

That saw the euro fall to US$1.43.01 from US$1.44.22 previously.

The decline was limited by market bets that the European Central Bank will raise interest rates by 25 basis points when it meets later today. That staunched a run on risk sentiment in global equity markets, with the Standard & Poor's gaining 0.1 per cent to 1,339.22, while Europe's Stoxx 600 closed 0.3 per cent lower at 274.79.

"What you saw overnight was the euro leading the moves lower, which started with Portugal being downgraded by Moody's, triggering renewed concerns around Europe's sovereign debt," said Mike Burrowes, a markets strategist at Bank of New Zealand.

"But looking at European and US equity markets, they haven't had similar moves, and the kiwi and Australian dollar held up relatively well."

Commodity prices continued their decline after China raised interest raise rates for the third time this year. The 25 basis point hike saw the 19-commodity Thompson Reuters Jefferies CRB Index fall 0.4 per cent to 340.20.

That weighed on the Australian dollar, which fell to US$1.06.77 from US$1.07.11 previously.

The kiwi recently traded at 82.50 US cents, down from 82.78 cents yesterday, and slipped to 71.33 on the trade-weighted index of major trading partners' currencies from 71.36.

It was unchanged at 77.21 Australian cents, and dropped to 66.73 yen from 66.91 yen.

It rose to 57.67 euro cents from 57.41 cents yesterday, and fell to 51.60 pence from 51.66 pence previously.

Growth in the US service sector remained sluggish in June after the
Institute for Supply Management's non-Manufacturing Index came in with a reading of 54 for the month, marginally down from 54.6 in May.

The data, while weaker, shows the sector is still in expansion with a reading above 50 points.

The currency may trade in a range of 82.30 US cents and 82.90 today, Burrowes said.