NZ dollar jumps to four-month high vs euro on speculation ECB may extend stimulus

Wednesday 26th March 2014

The New Zealand dollar rose to a four-month high against the euro on speculation the European Central Bank may ease monetary policy further, contrasting with New Zealand where interest rates are increasing.

The kiwi touched 62.20 euro cents this morning, and was trading at 61.99 cents at 8am from 61.82 cents at 5pm yesterday. The local currency advanced to 85.73 US cents from 85.51 cents as a weaker Richmond Fed manufacturing report suggested activity in the world's largest economy may not pick up till April, denting demand for the greenback.

The 18-nation European common currency weakened after ECB policymakers signalled the central bank stood ready to take further stimulatory measures to support the region's economic recovery and stem a surging euro. That contrasts with the New Zealand Reserve Bank which is tightening monetary policy on concern about accelerating inflation.

"They said basically don't count the ECB out, negative deposit rates are still possible and unconventional measures are still on the table, we stand prepared to act, which essentially drove euro weakness," said ANZ Bank senior FX strategist Sam Tuck. "The RBNZ and the New Zealand domestic data does not indicate any deviation from being in a completely opposite camp from the ECB."

ANZ expects the kiwi to trade between 61.80 euro cents and 62.40 cents today.

ECB governing council member and Bundesbank chief Jens Weidmann said negative interest rates were an option the bank could use to counter strong gains in the single currency while ECB governing council member Jozef Makuch said the central bank was preparing additional nonstandard measures to avoid a deflationary environment, including the possibility of adding liquidity.

Weighing on the euro, a German Ifo business sentiment index printed weaker than expected. The euro recovered some ground after ECB president Mario Draghi signalled the exchange rate is not a target for the ECB, and the euro's appreciation is due to a return of confidence.

In New Zealand today, the Reserve Bank will release housing market indicators including loan-to-value-ratio and mortgage approvals data. The government publishes its 2014 investment statement this afternoon. Finance Minister Bill English will give a speech at the Credit Suisse Asian Investment Conference in Hong Kong.

The New Zealand and Australian dollars are in demand by investors seeking yield, said ANZ's Tuck.

The kiwi was little changed at 93.52 Australian cents from 93.58 cents yesterday. Today, Australian Reserve Bank deputy governor Philip Lowe is scheduled to speak at the Centre for International Finance and Regulation Conference, while governor Glenn Stevens is due to speak at the Credit Suisse Asian Investment Conference in Hong Kong.

The RBA will release its latest Financial Stability Review at 1:30pm New Zealand time.

The New Zealand dollar advanced to 87.66 yen from 87.50 yen yesterday and was little changed at 51.85 British pence from 51.84 pence. The trade-weighted index gained to 80.04 from 79.92 yesterday.

BusinessDesk.co.nz

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