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NZ dollar falls vs. euro after Draghi says ECB ready to buy bonds

Friday 5th October 2012

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The New Zealand dollar fell against the euro after European Central Bank president Mario Draghi said the bank was ready to buy bonds of euro zone members, leaving the door open to bail out Spain.

The New Zealand dollar fell to 63.08 euro cents at 8am from 63.47 cents. The kiwi was little changed on 82.14 US cents from 82.06 cents. The trade weighted index decreased to 73.18 from 73.55.

The local currency fell against the euro after the ECB and the Bank of England left interest rates unchanged and Draghi used the press conference to reiterate the central bank's soft macro outlook. Draghi said the shared currency was irreversible and the bank's decision to purchase bonds would help ease tensions.

Equity market on both sides of the Atlantic rallied after the announcement with the Dow Jones Industrial Average climbing 0.6 percent and Germany's DAX up 0.3 percent.

"All the focus is on what Draghi said - it was seen as a positive by markets," said Stuart Ive, currency strategist at HiFX. "It looks as if the kiwi has made its lows for the time being with a good rally for the euro following the ECB's comments."

The kiwi is likely to trade in a range of 63.35 euro cents and 62.80 cents on the day, Ive said.

The New Zealand dollar was little changed against the US dollar after minutes from the Federal Reserve Open Market Committee said the central bank could change the size of its monthly bond purchases to reduce risks associated with quantitative easing such as market disruption or rising inflation.

In September, Fed Chairman Ben Bernanke announced the central bank would expand its holdings of long-term securities with open-ended purchases of US$40 billion of mortgage debt a month.

US Labor Department data showed applications for jobless benefits increased 4,000 to 367,000 in the week ended Sept. 29. A Bloomberg survey had forecast 370,000 claims. That comes ahead of Friday's non-farm payrolls which is expected to show employers hired 115,000 workers in September, more than the prior month, while the jobless rate rose to 8.2 percent from 8.1 percent.

Markets in the US will be closed on Monday for Columbus Day.

There is no more significant New Zealand data set for release until Tuesday's New Zealand Institute of Economic Research's business survey.

The New Zealand dollar fell to 50.74 British pence from 50.95 pence and dropped to 64.45 yen from 64.55 yen. The kiwi rose to 80.51 Australian cents from 80.33 cents.

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