Kiwi dollar surges to US78c on Euro optimism

Photo / Dean Purcell

The New Zealand dollar rose more than one US cent overnight as equity markets surged in response to statements by German Chancellor Angela Merkel and French President Nicholas Sarkozy even though they did not detail a plan to resolve the European debt crisis.

The kiwi dollar was at 78.25 US cents at 8am from 77.28 US cents at 5pm on Monday and traded as high as 78.52 US cents overnight.

That put it near the top of a range analysts set for a week in which they expected investors to be focused on the pathway to resolution of European sovereign debt crisis.

The leaders of Germany and France on Sunday set a tight deadline for a comprehensive plan to tackle the euro zone financial crisis that undermined global markets last week.

While investors still don't know if Greece will default or how affected banks will be recapitalised, the pledge to have a plan before the Group of 20 summit in Cannes from November 3 suggested unity of purpose from two large European economies.

The euro posted its biggest gain in 15 months against the dollar on Monday and the S&P 500 rose 2.7 per cent. Trading was reduced by the Columbus Day holiday in the United States.

"It is risk on. The equity markets have rallied on the hope that Europe is making progress on a settlement but there is no detail out," said Alex Sinton, senior dealer at ANZ New Zealand.

Yesterday Alex Hill, manager of corporate FX at HiFX said moves were exaggerated because markets were illiquid because of the US holiday.

The Belgian government is paying 4 billion euro for the consumer lending unit of Dexia bank and will guarantee 60 per cent of the so-called bad bank containing troubled assets.

New Zealand Government accounts for the year to June 30, 2010 today are not expected to move markets but electronic card transaction data for September will provide insight into spending patterns during the early part of the Rugby World Cup tournament.

The kiwi was little changed at 78.52 Australian cents from 78.60 cents yesterday and was at 60.01 yen from 59.30 yen.

It was little changed at 57.39 euro cents from 57.36 cents yesterday and was 49.96 British pence from 49.44 pence yesterday.

The trade-weighted index rose to 69.12 from 68.75 yesterday and 68.92 on Friday.