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NZ dollar surges against euro as weaker data prompts speculation ECB will add more stimulus

Friday 1st November 2013

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The New Zealand dollar jumped three quarters of a cent against the euro after weaker inflation and higher unemployment in the euro-zone raised expectations the European Central Bank may move to further stimulate the regional economy.

The kiwi touched 60.94 euro cents early this morning, and was trading at 60.79 cents at 8am in Wellington, from 60.18 cents at the 5pm market close yesterday. The kiwi increased to 82.62 US cents from 82.49 cents yesterday.

The European common currency declined sharply after euro-zone inflation fell to nearly four-year lows in October and unemployment unexpectedly remained at record highs in September, prompting speculation the European Central Bank will provide further stimulus to the 17 countries that share the common currency.

The European data "immediately saw the euro get sold off and the US dollar strengthen on that basis," said Stuart Ive, senior client advisor, foreign exchange and derivatives at OM Financial. "Benign inflation in Europe means expectations are rising that the European Central Bank will add more stimulus to the economy there. That is why we are seeing this very big move in the euro."

European inflation fell to 0.7 percent year-on-year in October, the lowest reading since November 2009, according to a flash estimate from the European Union's statistics office. It was lower than any forecast from economists in a Reuters poll.

The European Central Bank, which meets next Thursday, wants to keep inflation below, but close to 2 percent over the medium term. Its main refinancing rate is at a record low 0.5 percent.

Also yesterday, Eurostat revised up its estimate of European unemployment in August to 12.2 percent, from a previous estimate of 12 percent, and said the number hadn't changed in September.

Today, traders will be eyeing reports on Chinese manufacturing for an indication of how Asia's largest economy is tracking. The official Chinese manufacturing PMI is released at 2pm, followed by the HSBC manufacturing PMI at 2:45pm.

Buoyant manufacturing activity in China would increase demand for the Aussie and the kiwi, Mike Jones, currency strategist at Bank of New Zealand, said in a note.

The New Zealand dollar increased to 87.35 Australian cents from 86.87 cents yesterday. The local currency was little changed at 51.46 British pence from 51.50 yesterday and at 81.23 yen from 81.25 yen. The trade-weighted index increased to 76.65 from 76.33 yesterday.

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