The New Zealand dollar rose against the euro as Italian bond yields shot up amid fears Europe’s third-biggest economy isn’t doing enough to clamp down on government spending. 

The kiwi increased to 56.92 euro cents as at 8am in Wellington from 56.72 cents last week. It traded at 66.05 US cents from 66.16 cents at the New York close on Friday and 66.03 cents in Asia last week. 

The yield on Italy’s 10-year government bond jumped 23 basis points to 3.14 percent after Italy’s coalition government overruled Finance Minister Giovanni Tria’s efforts to contain the budget deficit. The deficit target was set at 2.4 percent of GDP for each of the next three years, where Tria had pushed for 1.6 percent. The euro was weaker and stock markets in France and Germany fell as investors grew wary of a showdown between European Union officials and Italy’s government over the size of the projected budget deficit. 

“Italian budget concerns together with soft euro area inflation have knocked the euro,” ANZ Bank New Zealand Sharon Zollner and Philip Borkin said in a note. The kiwi/euro “cross is up near resistance, and we wouldn’t be surprised if it tested through that level this week.”

No local data is scheduled for today, while New South Wales is closed for the Labour Day holiday. Japan’s Tankan manufacturing survey will be watched. The kiwi traded at 91.39 Australian cents from 91.46 cents on Friday in New York and edged down to 75.09 yen from 75.21 yen. 

The New Zealand dollar fell to 85.04 Canadian cents from 85.35 cents last week on reports Canada and the US are close to reaching a deal on a revised North American Free Trade Agreement. 

The local currency was little changed at 50.66 British pence from 50.76 pence last week and increased to 4.5363 Chinese yuan from 4.5439 yuan. The trade-weighted index was at 71.89 from 71.86. 

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