NZ dollar nears two-week high

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The New Zealand dollar rose to near a two-week high after Europe's powerhouses France and Germany reached agreement to amend the European Union treaty, allowing for tighter controls on member states to help solve the debt crisis.

The New Zealand dollar rose to 78.33 US cents overnight, from 77.76 yesterday, and was recently at 77.97 cents.

German Chancellor Angela Merkel and French President Nicolas Sarkozy met in Paris yesterday to agree on the working proposals they will put to the European Union leaders' summit this Friday to prevent a break-up of the trading bloc.

The plan will mean a rewrite of the EU treaty, which would need to be approved by all 27 EU leaders and may signal European leaders are finally committing to end the crisis.

The agreement "has stabilised risk sentiment but we don't know enough detail to make a conclusive call about what it yet means," said Dan Bell, a currency strategist at HiFX.

"Our currency has more or less consolidated around recent highs instead of breaking into new highs."

Equity markets rose in Europe and the US and the euro gained 0.5 per cent to $1.34, following a 1.2 per cent gain last week.

The proposed agreement will be sent to European Union officials on Wednesday ahead of the summit.

Traders are awaiting today's announcement from the Reserve Bank of Australia on interest rates in New Zealand's biggest export market, amid expectations it will cut its cash target a quarter point to 4.25 per cent.

A rate cut in Australia would narrow the gap with New Zealand's 2.5 per cent official cash rate.

New Zealand Reserve Bank Governor Alan Bollard releases his first review of monetary policy since the November 26 election on Thursday, with all 13 economists in a Reuters survey predicting no change in the OCR.

Bollard flagged the risks of Europe's sovereign debt crisis slowing the global economy in his last review of interest rates in October and economists expect him to reiterate that view this week.

New Zealand interest rates are still relatively attractive enough to lure overseas funds, underpinning demand for the kiwi dollar, with benchmark rates in the US and Japan near zero and Australia set to cut borrowing costs.

There is no local data set for release today.

The kiwi rose to 58.13 euro cents from 58.01 cents yesterday and was at 60.69 yen from 60.67. It dropped to 76.03 Australian cents from 76.04 and 60.43 yen from 60.46 yesterday. The kiwi was little changed at 49.86 British pence.

The trade weighted index rose to 69.02 from 68.91.