Kiwi hits record high against euro as central banks meet

BUSINESSDESK: The New Zealand dollar hit a record high against the euro after a report showed Germany's service industry unexpectedly shrank last month, adding to speculation that the European Central Bank will cut interest rates.

The kiwi rose as high as 64.25 euro cents, its highest since the 17-nation currency entered circulation in 2002. It traded at 64.11 euro cents at 8am up from 63.92 cents yesterday at 5pm.

It was little changed on 80.36 US cents from 80.40 cents at 5pm.

Germany's service industries unexpectedly contracted in June, with its services PMI falling to 49.9 from 51.8 in May, according to London-based Markit Economics. A figure below 50 indicates contraction.

That has helped underpin speculation ECB president Mario Draghi will cut rates by 0.25 points to 0.75%, according to the median forecast of economists in a Bloomberg survey when the bank meets to review borrowing costs tomorrow. The Bank of England is also preparing to meet then.

"The New Zealand dollar held firm overnight," said Mike Jones, market strategist at the Bank of New Zealand. "Tonight’s ECB and Bank of England decisions should set the tone for risk appetite and the ‘risk sensitive’ currencies." 

"This is particularly so given central bank stimulus is being relied on to prop up the global economy," Mr Jones said.

He is picking the kiwi could rise as high as 65 euro cents to 66 cents over the next couple of months.

The kiwi hit a fresh two and half month high against the pound to 51.53 from 51.33 pence yesterday – highest the currency has traded since April 25.

The Bank of England is expected to raise its target for bond purchases by £50 billion to £375 billion tomorrow, according to the median estimate of analysts in a Bloomberg News survey.

There is no significant New Zealand data set for release today.

The kiwi went to 78.16 Australian cents from 78.17 cents yesterday and is largely unchanged on 64.11 yen from 64.18 yen.

The trade weighted index was little changed on 72.60 from 72.57.