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NZ weaker as ECB package, inflation data lifts greenback

Friday 13th September 2019

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The New Zealand dollar fell after a bigger than expected stimulus from the European Central Bank and stronger-than-expected US inflation data lifted the greenback.

The kiwi was trading at 64.04 US cents at 7:45am in Wellington from 64.34 at 5pm yesterday. The trade-weighted index was at 71.00 from  71.41.

The ECB decision to cut its deposit rate by 10 basis points and the relaunch of its asset purchase programme - a form of quantitative easing - at a monthly pace of 20 billion euros from Nov. 1 was in line with most expectations.

“The governing council’s commitment to keep QE going for an unlimited amount of time was significantly more dovish than even our forecast of 24 months,” said Capital Economics.

US President Donald Trump was quick to respond, once again criticising the US Federal Reserve.

“They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports.... And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!,” he tweeted.

ECB president Mario Draghi responded by saying "we pursue price stability and we don't target exchange rates, period." 

The euro pared some of its losses on news that several members of the ECB governing council were opposed to some of the hew stimulus programme. According to Bloomberg,  France, Germany and the Netherlands weren’t in favour of restarting quantitative easing.  The kiwi was trading at  57.88 euro cents from 58.43 late yesterday. 

The greenback, however, was also supported by data from the US Bureau of Labor Statistics that showed that core inflation – which strips out food and energy – was up 2.4 percent over the year.

“The broad-based increase suggests the period of weak inflation has passed, bringing into question how far the Fed can cut,” said ANZ Bank FX/Rates strategist Sandeep Parekh.

However, financial markets are still fully pricing in a rate cut at the Sept. 17-18 policy meeting and most economists expect further cuts this year.

Today, investors will be watching for today’s BusinessNZ Manufacturing PMI for a steer on whether the contraction in July continued into August.

The New Zealand dollar was at 93.30 Australian cents from 93.49 Australian cents, at 51.90 British pence from 52.19, at 69.25 yen from 69.54 and at 4.5332 Chinese yuan from 4.5589.


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