NZ dollar falls against euro as ECB meeting looms

Tuesday 20th January 2015

The New Zealand dollar declined against the euro after touching record highs over the weekend, amid speculation an expected quantitative easing programme by the European Central Bank this week may not be as large as anticipated.

The kiwi fell to 66.92 euro cents at 8am in Wellington, from 67.41 cents at 5pm yesterday and a record 67.63 cents at the weekend. The local currency weakened to 77.73 US cents from 77.93 cents yesterday as US markets were closed for the Martin Luther King Day holiday.

The ECB is widely expected to launch QE at its meeting on Thursday to boost growth after the region slipped into deflation last year. A Reuters poll published yesterday showed money market traders expect the ECB to announce 600 billion of sovereign bond purchases, ahead of the 500 billion euros in models presented to ECB officials this month. The euro is volatile as traders take positions ahead of the announcement.

"Part of that buying of euro is the market starting to bet very heavily on full scale quantitative easing by the ECB on Thursday which is worrying because failure to deliver to expectations could produce another wave of currency market volatility," said Peter Cavanaugh, client advisor at Bancorp Treasury Services. "Disappointment could be harmful."

Bancorp's Cavanaugh said the euro may continue to firm ahead of the meeting but a money printing programme like quantitative easing would eventually limit any gains.

"It is just fundamental supply and demand, if you are going to produce a lot of euros, the price is going to go down," he said.

In New Zealand today, the New Zealand Institute of Economic Research publishes its quarterly survey of business opinion.

In Asia, the focus this afternoon will be on a slew of economic data from China, the largest trading partner of New Zealand and Australia. That includes fourth quarter gross domestic product as well as December industrial production, retail sales, housing sales, housing starts and fixed investment.

Tonight traders will be eyeing Eurozone economic confidence and a US report on the housing market.

Early tomorrow morning, Fonterra Cooperative Group holds its GlobalDairyTrade auction.

The New Zealand dollar declined to 94.70 Australian cents from 94.92 cents yesterday, edged up to 91.36 yen from 91.27 yen and slipped to 51.38 British pence from 51.47 pence. The trade weighted index fell to 79.23 from 79.40 yesterday.

BusinessDesk.co.nz

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