The New Zealand dollar surged to a seven-month high against the euro after a European official said terms of a bailout for Cyprus, where uninsured depositors will face losses, could serve as a template in other euro-zone countries.
The kiwi climbed to 65.01 euro cents, the highest since August last year, from 64.05 cents at 5pm in Wellington yesterday. The local currency traded at 83.52 US cents from 83.47 cents.
Stocks in Europe fell and the euro sank to a four-month low against the greenback after Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of euro-zone finance ministers, told Reuters that future bank restructurings could seek funds from uninsured depositors. Dijsselbloem later issued a clarification that banking rescues had to be tailored to specific circumstances.
Dijsselbloem's comments that the Cyprus banking tax could be a template "rattled confidence," said Mike Jones, strategist at Bank of New Zealand. "European sentiment dived" on the prospect of investors having to bear the brunt of the pain on the bailouts.
Jones said the news was being treated as a European shock rather than something that could derail the global economy, hence the kiwi and Australian dollar had held their ground against the greenback.
