The New Zealand dollar gained against the euro as Italy’s plans to run budget deficits for the next three years are at odds with European Union rules. 

The kiwi increased to 56.14 euro cents as at 8am in Wellington from 55.93 cents yesterday. It traded at 64.51 US cents from 64.39 cents yesterday, with US markets closed for the Columbus Day holiday. 

The yield on Italian 10-year government bonds rose 5 basis points to 3.62 percent and the euro was broadly weaker after the European Commission told Italy it was concerned the nation’s projected budget deficits for the next three years were outside the regional bloc’s rules on government debt. Italy’s Deputy Prime Minister Matteo Salvini responded by calling EU leaders “enemies of Europe” who have brought “fear and insecurity” to the continent. 

“A showdown is looming between Italy and the EU as they prepare for the next battle over the 2019 budget, with the plan for a 2.4 percent of GDP deficit in breach of the EU rules,” Bank of New Zealand senior markets strategist Jason Wong said in a note. 

No local data is scheduled for today although the government’s annual accounts will be released. 

While the US market was closed on Monday, China’s re-opened after the ‘Golden Week’ holiday with the People’s Bank of China outlining plans on Sunday to reduce the reserves lenders need to hold. China’s central bank also weakened the yuan’s reference rate less than expected yesterday, amid reports the US administration is concerned about the currency’s devaluation. 

“Treasury Secretary Mnuchin is facing pressure from the White House to name China as a currency manipulator in the semi-annual report on America’s trading partners’ currencies due later this month, ” Wong said. “This would be ironic as the US policies including trade tariffs have been the key source of downward pressure on CNY this year.” 

The kiwi rose to 4.4698 Chinese yuan from 4.4408 yuan yesterday. It fell to 72.89 yen from 73.31 yen. The local currency traded at 91.13 Australian cents from 91.23 cents yesterday and edged up to 49.27 British pence from 49.11 pence. The trade-weighted index was at 70.75 from 70.60 yesterday. 

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