The New Zealand dollar held near a five-month high against the euro after Europe's woes trumped upbeat sentiment from improving US data, though thin volumes will likely lead to volatile trading in the kiwi over the next few weeks.
The currency traded at 60.85 euro cents at 5pm from 60.80 cents at 8am, and up from 60.46 cents yesterday. It was little changed at 78.68 US cents from 78.84 cents at 8am, and 78.82 cents yesterday.
Fears about Europe's ability to deal with ballooning sovereign debt reignited after Germany struggled to attract much demand at a bond auction ahead of France's sale of government debt tomorrow. That eroded optimism out of the US after yesterday's best manufacturing data in six months. Still, with trading desks registering light volumes as the holiday season winds down, movements in so-called risk-sensitive currencies are likely to be exaggerated.
"We saw some of the previous night's optimism wane a bit as the focus turned away from better US data back on to Europe's problems" said Jane Turner, economist at ASB Institutional. "Trading volumes are very light with everyone still on holiday" which heightens the kiwi dollar's movements, she said.
Turner said the kiwi will probably continue to follow ebbs and flows in investors' appetite for higher-yielding, or riskier, assets over the coming month in much the same way as it did in December, and that volatility in the currency will probably last until the middle of the year.
