NZ dollar rises as stocks bounce on euro hopes

Photo / Dean Purcell

The New Zealand dollar rose against the greenback in volatile trade, following equities higher after European officials signalled that they were working on ways to increase the scope of euro zone rescue fund.

The New Zealand dollar recently traded at 77.61 US cents, up from 76.70 cents yesterday, and rose to 69.15 on the trade-weighted index of major trading partners' currencies from 68.56 previously.

Global equities rose for a second session after last week's sharp selloff amid signs that European policymakers are beginning to bow to pressure from the troika made up of the European Central Bank, International Monetary Fund and World Bank and are start to explore ways of beefing up the European Financial Stability Fund.

Moves to leverage the 440 billion euro bailout fund to increase its reach appeared to be confirmed after ECB executive board member Lorenzo Bini Smaghi said politicians had already begun discussing ways to achieve this.

On Wall Street, the Standard & Poor's 500 Index rose 1.2 per cent to 1,149.55, while in Europe the Stoxx 600 Index rose 1.9 per cent to 220.28, and the 19-commodity Thompson Reuters Jefferies CRB Index rose 0.4 per cent to 303.10.

Still the risk-on mood looks fragile and susceptible to headline risk. Already German Chancellor Angela has faced difficulties convincing her centre-right coalition to back the expansion on the EFSF. The changes to the fund also come before all the euro zone countries have voted on the original plan.

"Further erratic moves by the New Zealand dollar underscore the illiquid nature of the currency and its dependence on external factors," said Alex Sinton, a senior dealer at ANZ New Zealand. "Expect similar trading patterns to continue as markets remain glued to headlines and announcements around the developing European situation."

On the crosses, the kiwi recently traded at 79.49 Australian cents, up from 79.42 cents yesterday, and rose to 59.34 Japanese yen from 58.49 yen previously. It rose to 57.68 euro cents from 57.21 cents yesterday, and gained to 50.01 pence from 49.62 pence previously.

The kiwi may trade between a range of 76.50 US cents and 78.14 cents, Sinton said, with further consolidation at the current level likely.