NZ dollar falls short of five-week high

The New Zealand dollar continued to retreat from its five-week high overnight, dragged down by a weakening euro.

The kiwi topped US71.50c against the greenback during the offshore session after China's vow to allow a flexible yuan rekindled optimism about global recovery.

By 5pm, though, the kiwi had eased to US70.79c, also undershooting its level of US71.06c at 5pm yesterday.

In its morning briefing notes, ANZ bank said the weight of a falling euro had been too much for the NZ dollar early today.

The euro continued to slide during the day, on fears that Chinese authorities were actually intervening to rein in the yuan's surge despite the earlier political decision.

The NZ dollar reached its highest level in nearly three years against the European currency overnight around 0.5770 euro, but slipped to 0.5753 euro at 5pm, albeit up from 0.5717 late yesterday afternoon.

Commodity-tied currencies such as the NZ and Australian dollars are expected to be underpinned by Beijing's currency move, which should boost purchasing power and demand in the world's third-largest economy.

"China's move has unleashed improved confidence and higher risk appetite," said Richard Franulovich, senior currency strategist at Westpac in New York.

"Commodity currencies such as the aussie and kiwi will always be the biggest beneficiaries on the ground that yuan strength raises China's purchasing power."

The NZ dollar also reached a five-week high around 65.30 yen but by 5pm had retreated to 64.39, a touch weaker than at the same time yesterday.

The kiwi continued moving in a narrow band against its Australian counterpart, and was virtually unchanged at A80.65c. The trade weighted index was at 68.08 at 5m from 68.04 late yesterday.

Balance of payments figures are out tomorrow, with gross domestic product on Thursday.

- NZPA