Kiwi unit up after NZ declared Covid-free

London

THE New Zealand dollar strengthened to its highest in nearly four months after it said it had stopped transmission of Covid-19 within the country.

New Zealand Prime Minister Jacinda Arden said on Monday that it would lift all virus-containment measures apart from border controls, making it one of the first countries to do so.

The New Zealand dollar rose against the US dollar in early London trading, hitting a high of 0.6540, its strongest since Jan 29. The Australian dollar also rose, close to five-month highs at 0.6979.

But hopes for an economic recovery were less clear elsewhere. Better-than-expected US employment data raised expectations for a quicker global economic revival on Friday. The dollar edged up from recent two-and-a-half-month lows on Monday.

But in Europe, the rally in stocks paused as investors turned cautious again.

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German industrial output plunged the most on record in April as the coronavirus pandemic forced companies in Europe's largest economy to scale back production.

The euro was flat, having slipped from recent highs, at US$1.1286. It reached a three-month high of US$1.1384 last week after the European Central Bank (ECB) announced that it was expanding its stimulus programme.

At 1000 GMT, the dollar index was at 96.88, having gained overnight, fallen in early London trading, then started gaining again from around 0720 GMT.

"The Fed's strong commitment to maintain loose policy helped to dampen the US dollar's positive reaction to the stronger NFP report," Lee Hardman, currency analyst at MUFG, wrote in a note to clients.

But he added that his models signalled there was a risk of the dollar correcting higher, temporarily, after having been heavily oversold.

The dollar lost out to the safe-haven Japanese yen, which rose to 109.43 at 1000 GMT.

This was a reversal of recent downward pressure on the yen, which fell against the dollar every day last week as risk appetite improved.

The US Federal Reserve policymakers meet this week. They will need to balance signs that the economic fallout from the virus is past its worst with the evidence that the virus itself is not yet under control.

"It is way too soon for the Fed to seriously consider reining in their aggressive policy easing in response to the economic recovery," wrote MUFG's Mr Hardman. REUTERS