Kiwi may gain against euro as ECB monetary policy review looms

The New Zealand dollar may gain against the euro as investors returning from the Christmas and New Year holidays prepare for the European Central Bank to review monetary policy this week amid fears the region's economy will continue to shrink this year.

The kiwi increased to 63.66 euro cents at 5pm in Wellington from 63.54 cents yesterday. It was little changed at 83.53 US cents from 83.55 cents this morning, up from 82.94 cents yesterday.

Traders are preparing for the ECB to review its benchmark interest on January 10 and the bank is expected to keep its main refinancing rate at a record-low 0.75 percent, according to a Bloomberg survey.

That comes as economists are picking the euro region's economy to shrink 0.1 percent this year after a 0.4 percent contraction in 2012, the survey shows.

"No-one is expecting them to cut interest rates, but if you look at the situation in Europe, it continues to be pretty challenging over there," says Dan Bell, currency strategist at HiFX in Auckland.

New Zealand's currency "has got more potential to get back over 64 euro cents - overall, the New Zealand dollar has started the year in favour".

The euro got a fillip in Asian trading after Japan's Finance Minister Taro Aso said the world's third-biggest economy would buy bonds issued by the European Stability Mechanism to help weaken the yen. The kiwi rose to 73.66 yen at 5pm in Wellington from 73.07 yen yesterday.

Mr Bell says the kiwi looks as if it will continue to trade in a range against the greenback after an earlier rally on the US fiscal cliff deal, which averted $US600 billion of automatic tax increases and spending cuts.

The kiwi rose to 79.69 Australian cents from 79.14 cents yesterday after Australia reported a wider trade deficit than expected.

Australian imports outpaced exports by $A2.64 billion in October, government figures show, the widest gap since March 2008 and bigger than the median forecast in a Bloomberg survey.

The kiw climbed to 51.86 British pence from 51.68 pence yesterday.

The trade-weighted index advanced to 75.17 from 74.82.

(BusinessDesk)