NZ dollar rises as greenback slides on Moody's US warning

The New Zealand dollar rose against the greenback after Moody's Investors Service warned the US could face a possible ratings downgrade if politicians don't break the debt ceiling deadlock.

Moody's flagged America's Aaa rating may be under threat amid signs that talks on raising the debt-ceiling, a government imposed limit on how much it can borrow, are stalling as Republicans and Democrats lock horns over deficit reduction measures.

The US hit its debt ceiling limit of $14 trillion in mid-May, but has been able to delay a default until August by tapping other funds such as pensions.

The announcement raised fresh concerns about the pace of recovery in the world's biggest economy and saw investors abandon dollar positions, with the Dollar Index, a measure of the greenback against a basket of six currencies, falling to 74.29, down from 74.69 yesterday, its lowest level in almost a month.

"The market would have taken the announcement as more of warning shot across the bow right now," said Tim Kelleher, head of institutional FX sales New Zealand at ASB Institutional. "As we get closer to mid to late July the market will start giving a lot more credence to it."

The kiwi dollar recently traded at 81.60 US cents, up from 81.28 cents yesterday, and rose to 70.28 on the trade-weighted index of major trading partners' currencies from 70.16. It rose to 76.52 Australian cents from 76.43 cents previously, and gained to 65.99 yen from 65.88 yen.

It declined to 56.39 euro cents from 57.47 cents yesterday, rose to 49.90 pence from 49.81 pence previously.

The kiwi also gained support from a correction in the euro seen amid the greenback sell-off, with the European single currency rising to US$1.4479 from US$1.4387 yesterday, amid reports that European officials have agree in principle to a new bailout for Greece.

The new package, which lacks detail at this stage, will effectively replace the currency 110 billion euro package and give the heavily indebted nation an additional year of financial support. Movements in the euro are tracked closely by the kiwi dollar.

Currency traders will be watching for the release of US non-farm payroll data after the close of the New Zealand market today.

The market is expecting the US economy to have added 170,000 new jobs in May according to a Bloomberg poll, short of the 244,000 increase seen last month.

The kiwi dollar may trade in a range of 81.40 US cents to 81.80 cents, Kelleher said.