NZ dollar gains as Europe debt fears ease

The New Zealand dollar climbed back above 72 US cents as fears about the state of Europe's sovereign debt eased amid strong demand for Portuguese government bonds, while the Federal Reserve's Beige Book kept a downbeat outlook on the US economy.

Portugal raised 1.04 billion euros in a government bond auction, with bids outstripping the offered amount by 2.6 times. That eased concerns about the state of Europe's sovereign debt after a Wall Street Journal article questioned the integrity of July's bank stress tests, and stoked investors' appetite for higher-yielding, or riskier, assets.

Markets wound down their holdings in the US dollar as the Fed kept its gloomy forecast for the world's biggest economy, saying there were widespread signs of a slowdown last month.

The Beige Book "put a little pressure on the US dollar, while Europe bond markets added to the risk-on bias," said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia. Local yields "are still attractive compared to Europe and the States, without the risk premium" which is helping boost support for the kiwi, he said.

The kiwi climbed to 72.21 US cents from 71.90 cents yesterday, and gained to 67.19 on the trade-weighted index of major trading partners' currencies from 66.95. It increased to 60.60 yen from 60.20 yen yesterday, and advanced to 78.68 Australian cents from 78.48 cents. It rose to 56.77 euro cents from 56.68 cents yesterday, and was edged up to 46.67 pence from 46.59 pence.

Kelleher said the currency may trade between 72 US cents and 72.50 cents today, and will probably get a lift when Asian markets open after stocks gained on Wall Street and in Europe.

The Bank of Canada hiked its benchmark interest rate a quarter per cent to 1 per cent, and the bank expects the recovery to be slightly more gradual than in July. The kiwi dollar fell to 74.94 Canadian cents from 75.38 cents yesterday.