NZ dollar gains vs. euro after ECB signals it may introduce stimulus to counter deflation

Friday 4th April 2014

The New Zealand dollar advanced against the euro after European Central Bank president Mario Draghi signalled the bank was ready to take further steps to counter low inflation.

The New Zealand dollar advanced to 62.25 euro cents at 8am in Wellington from 62.09 cents at 5pm yesterday. The local currency edged lower to 85.38 US cents from 85.43 cents yesterday ahead of key US employment data which may show the world's largest economy added the most number of jobs in a month since November.

The European common currency shared by 18 countries weakened after Draghi said quantitative easing, another rate cut, negative deposit rates and a narrower rate corridor were all discussed at the central bank's monthly meeting where it kept interest rates unchanged at 0.25 percent. The ECB is concerned about continued low inflation after consumer prices held below 1 percent for a sixth month in March.

The latest statement "makes clear that the ECB is ready to step into unchartered waters if inflation continues to disappoint," Raiko Shareef, currency strategist at Bank of New Zealand, said in a note. "The ECB's governing council is now 'unanimous in its commitment' to use unconventional policy tools."

Tonight, all eyes will be on the US employment data which is expected to show payrolls grew by 200,000 in March after a gain of 175,000 in February, Shareef said.

The New Zealand dollar weakened to 92.50 Australian cents, from 92.66 cents yesterday after Reserve Bank of Australia governor Glenn Stevens yesterday reiterated comments that there were encouraging signs of growth as the economy rebalances away from mining.

The kiwi advanced to 51.46 British pence from 51.34 pence after the UK's services Purchasing Managers' Index for March dropped for a fourth consecutive month to 57.6, lagging the 58.2 expected.

The local currency dipped to 88.70 yen from 88.81 yen yesterday. The trade-weighted index was little changed at 79.95 from 79.94 yesterday.

BusinessDesk.co.nz

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