NZ dollar extends gain vs. euro on ECB money printing, rises against greenback

Friday 23rd October 2015

The New Zealand dollar extended its gain against the euro to a four-month high after the European Central Bank signalled it will expand its quantitative easing programme, driving appetite for riskier currencies such as the kiwi and commodity prices.

The kiwi rose as high as 61.63 euro cents, the highest since late June, and traded at 61.53 cents at 5pm in Wellington, from 59.58 cents late yesterday. The local currency rose to 68.39 US cents from 67.61 cents yesterday.

The European common currency tumbled after ECB president Mario Draghi said that while the bank would keep rates on hold at this month's meeting, it would review in December what more it could do to tackle the threat of weak inflation and moribund growth, and was ready to act. The kiwi has gained against the greenback amid speculation weaker US economic data adds to the case for the Federal Reserve to wait before raising interest rates, while in turn the Reserve Bank of New Zealand is expected to hold off cutting interest rates next week.

"The ECB's signal surprised a lot of people, that as long as we don't get a major improvement over the next couple of months they will probably expand their QE programme - more money printing, the whole caboodle. That's obviously bad for the euro," said Imre Speizer, currency strategist at Westpac Banking Corp. "This new bout of stimulus is good for risky currencies, good for the kiwi."

The kiwi dollar is also getting a lift from expectations the central bank will keep the official cash rate unchanged at its Oct. 29 review, preferring to wait until the full monetary policy statement on Dec. 10 to cut the rate. Governor Graeme Wheeler's Oct. 14 speech, while reiterating a further interest rate cut is likely, also cited the risk that lower borrowing costs would drive up housing demand, the further risk of a global downturn, and a run of “more encouraging” economic data.

"The RBNZ will sit it out in October," Speizer said. The Federal Open Market Committee is also expected to stay pat on interest rates at the end of October. The kiwi has "more upside" in the next few weeks, mainly reflecting the expectations of further weak US economic figures, he said. Further out, possibly from December on, though, there's a prospect of the local currency heading lower again, he said.

The New Zealand dollar advanced to 94.33 Australian cents from 93.46 cents yesterday, gained to 44.38 British pence from 43.80 pence, increased to 82.58 yen from 80.98 yen and rose to 4.3487 yuan from 4.2922 yuan. The trade-weighted index increased to 73.51 from 72.61 yesterday.

The two-year swap rate rose 1 basis point to 2.73 percent and 10-year swaps fell 1 basis point to 3.49 percent.

BusinessDesk.co.nz

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