NZ dollar drops to 15-month low vs euro after Draghi fails to voice concern

Monday 28th August 2017

The New Zealand dollar fell to a 15-month low against the euro after European Central Bank president Mario Draghi failed to mention the currency's strength in a speech at Jackson Hole as some market commentators had predicted while Federal Reserve chair Janet Yellen avoided the topic of monetary policy.

The kiwi dollar traded at 60.51 euro cents as at 8am in Wellington, having touched 60.43 cents this morning, the lowest since May last year, from 60.67 cents in New York on Friday. The kiwi has shed about half a euro cent from where it was in Wellington at the end of last week. The local currency traded at 72.36 US cents from 72.38 cents in New York and up from 72.03 cents in Wellington on Friday.

The euro gained to its highest level in two years against the greenback following Draghi's speech at the central bankers' symposium, where he talked broadly about risks to free trade. Traders had been speculating that both Draghi and Yellen may give clues to the direction of monetary policy and when they didn't, the market drove up the euro. TD Securities said in a note that "by failing to discuss the elephant(s) in the room — inflation and rate normalisation", Yellen's speech was "taken as dovish.”

"The lack of any comment on the stronger euro encouraged the market to take it higher, adding to the gains seen after Yellen’s speech," Jason Wong, currency strategist at Bank of New Zealand, said in a note. "The fall in the USD saw it end the week uncomfortably close to the key technical levels on the various dollar indices. A further nudge down would see the chartists salivating, calling for another 5-plus percent fall."

The US dollar index dropped to its lowest level in 15 months on Friday in New York.

With little local data this week - July dwelling consents on Wednesday, the ANZ Business Outlook for August on Thursday and second-quarter terms of trade on Friday - all eyes will be on US labour market figures at the end of the week. Non-farm payrolls probably grew by 180,000 in August from 209,000 in July, based on economist forecasts. Ahead of that data on Friday in the US, the ADP survey of private employment is also expected to show 180,000 new jobs, up from 178,000 last month.

The trade-weighted index was little changed at 75.95 from 75.86 in Wellington at the end of last week.

The New Zealand dollar was at 91.32 Australian cents from 91.21 cents in New York on Friday and fell to 55.93 British pence from 56.07 pence. The kiwi rose to 4.8101 yuan from 4.8007 yuan and was at 79.01 yen from 79.10 yen.

(BusinessDesk)

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