Kiwi heads for 4.5% quarterly euro gain as Cyprus bailout underlines EU woes

The New Zealand dollar is heading for a 4.5 percent quarterly gain against the euro as the unfolding woes across Europe emerge from the 10 billion euro bailout for Cyprus and as Italian politicians have still failed to cobble together a coalition government since last month's election.

The kiwi traded near a seven-month high at 65.39 euro cents at 5pm in Wellington from 65.20 cents yesterday. It fell to 83.56 US cents from 83.75 cents yesterday and is heading for a 1 percent quarterly gain against the greenback.

Investors are continuing to spurn the eurozone after the latest lifeline thrown to Cyprus saw one major bank closed and will leave some deposit holders facing losses. That has raised fears there could be a run on banks in other heavily indebted nations such as Spain, Portugal and Italy.

The region has also fallen out of favour over the inability of Italian legislators to find common ground and form a coalition government since the February general election.

"Overall, the UK and Europe are really struggling – austerity isn't working and it's going to be a long, drawn-out struggle for them," says Dan Bell, currency strategist at HiFX in Auckland. "Antipodean currencies and economies have a much more favourable profile any way you look at it: government debt to GDP, growth outlook or export markets into Asia and emerging markets."

He says the kiwi might pull back from its recent highs against the euro and pound, though it has more upside against them over a longer period. The Bank of England and European Central Bank are meeting next week, and investors will be looking for any clue form the ECB as to how it is viewing the ailing region.

The currency may slip against the greenback as global fund managers re-hedge their positions after global gains in stock markets in the quarter.

"After month and quarter end I wouldn't be surprised to see the New Zealand dollar lower," Mr Bell says.

Other central banks meeting next week include the Reserve Bank of Australia and the Bank of Japan.

The kiwi rose to 80.15 Australian cents from 80.02 cents yesterday, and advanced to 79.67 yen from 79.43 yen. It was at 55.21 British pence from 55.25 pence yesterday.

The trade-weighted index slipped to 76.91 from 77 and is heading for a 2.9 percent quarterly gain.

(BusinessDesk)