The New Zealand dollar has hit a five-year high against the euro - an unwanted benchmark which New Zealand's exporters should get used to for at least the first half of 2011.
Collectively, the eurozone and United Kingdom are New Zealand's fourth largest trading partner, behind (respectively) Australia, China and the United States, and in spite of some high commodity prices, the exchange rate against the euro is hurting exporters.
ASB economist Chris Tennant-Brown said the kiwi was already trading high in the six-month forecast against the euro, which is expected to trade within a range of 0.56-0.60 until June.
"We're seeing more of the sovereign debt issues which are not going to go away any time soon.
"Everyone is asking: `How ugly is your economy looking?'," Mr Tennant-Brown said when contacted yesterday.
While prices for New Zealand lamb in the eurozone have been strong, the foreign exchange rate is wiping out some of those gains, he said.
Following bailouts to Greece and more recently Ireland, Portugal is tipped to be heading in the same direction and its next issue of bonds will be keenly scrutinised by analysts.
"The ongoing theme in that [eurozone] region is the fiscally challenged countries.
Portugal has got a hefty bond issuance due and people are waiting to see if the markets just say `no'," Mr Tennant-Brown said.
The kiwi hit its five-year 0.59 euro high on Saturday; having a year ago been trading at 0.50 euro, while the kiwi against the US dollar had eased from a high of US78c on New Year's Eve to trade around 75.9 yesterday morning.
Arnaud Scarpaci, fund manager at Agilis Gestion in Paris, last week said risk premiums on Portugal's 10-year government bonds over benchmark German bunds rose 15 basis points to 4.33 percentage points, while those on 10-year Spanish bonds over bunds widened.
The five-year cost of insuring Portugal's debt against default rose by 15 basis points to 540 basis points.
"The rising yields at debt auctions in the eurozone will continue to spook investors for a while.
It's best to stay away from peripheral stocks such as Spanish and Portuguese banks until mid-year, when the crisis should ease," Mr Scarpaci said.
The easing of the kiwi against the greenback followed the US Labour Department last week reporting US non-farm payrolls rose 103,000, below expectations for gains of 175,000 jobs.
Unemployment dipped to 9.4% in the US, the lowest level in more than 18 months.
The euro fell to four-month lows against the US dollar early in Asia on Monday after stops were triggered in thin trade as worries about Europe's debt crisis mounted.
The single currency fell as low as $US1.2865 - last seen in mid-September - on talk that Portugal was under pressure from eurozone members such as Germany to seek financial aid.
A Portuguese Government spokesman on Sunday denied a German magazine report that Lisbon was under pressure from Berlin and Paris to seek a bailout from the European Union and International Monetary Fund.
- Additional reporting from Reuters and NZPA
