Kiwi hits fresh two-month high on EU bank pledge

BUSINESSDESK: The New Zealand dollar hit a fresh two-month high against the greenback after the European Union pledged to bail out the region's banking sector and traders await a raft of central bank meetings this week.

The kiwi rose as high as 80.16 US cents in local trading, the highest since May 2. It was 80.05 at cents at 5pm, little changed from 80.08 US cents just before 8am and 79.33 cents at the close of local trading on Friday.

The trade weighted index increased to 72.30 from 72.15.

The European Central Bank could help keep some of the EU's optimism alive, opting to ease rates when it reviews its borrowing costs on Thursday, when the Bank of England also meets.

In the Southern Hemisphere, economists are picking the Reserve Bank of Australia will keep its target cash rate unchanged at 3.5% after it cut a quarter percentage point in June and half a percentage point in May.

"This week is more about central bank action – they will have to try to keep the momentum going," said Chris Weston, market strategist at IG Markets. "These actions will support risk assets like the kiwi dollar."

On Friday, EU leaders agreed to use joint funds to bail out the region's banks following a two-day summit in Brussels. That has helped spur optimism that policymakers may be closer to resolving the eurozone’s debt crisis.

"There are some interesting dynamics coming through but what we saw is some baby steps as to where we should be going," Mr Weston said. "The market was clearly positioned for disappointment and they got something inspiring, that's why we got the reaction we did."

Four out of the six analysts polled in today's BusinessDesk survey predict the kiwi will finish the week higher, trading in a range of 78 cents to 81.80 cents.

New Zealand data out this week includes the ANZ commodity price index set for release tomorrow afternoon, followed by Fonterra's GlobalDairyTrade auction on Wednesday morning and the government's financial statements for the 11 months ended May 31 on Friday.

The kiwi rose to 78.35 Australian cents from 78.6 cents at 5pm on Friday, jumped to 63.46 euro cents from 63.16 cents and increased to 51.26 British pence from 50.91. It advanced to 63.83 yen from 63 yen.