The New Zealand hit new highs against the euro in local trading ahead of the first European Central Bank meeting of the year and against the backdrop of looming Italian and Spanish government bond auctions.
The kiwi rose to a fresh decade-high 62.76 euro cents and traded at 62.59 cents at 5pm from 62.67 cents yesterday. The local dollar rose to a two-month high of 79.80 US cents and traded at 79.62 cents at 5pm from 79.57 cents at 80 am and 79.31 cents yesterday.
The ECB will hold its first meeting of the year and is expected to keep the benchmark interest rate on hold at 1 per cent, with markets more interested in any commentary on the possibility of future quantitative easing. Ratings agency Fitch Ratings yesterday urged the ECB to increase bond purchases to prevent the collapse of the region's shared currency.
The monetary policy review comes as the heavily indebted governments of Spain and Italy look to tap investors for funding. The yield on 10-year Italian bonds fell to 7.04 per cent from 7.14 per cent yesterday, and was down to 5.36 per cent for the equivalent Spanish bond from 5.5 per cent.
"If the ECB puts the kybosh on any future stimulus, that will be very disappointing," said Imre Speizer, market strategist at Westpac Banking. "If the kiwi goes much over 80 US cents and gets to 81, I would start to think about abandoning my bearish view."
