NZ dollar rises against euro after weak reports signal ECB may add more stimulus

The New Zealand dollar jumped against the European common currency overnight after a report signalled further weakness in the European economy, fuelling bets the European Central Bank may add further stimulus.

The kiwi rose to 63.14 euro cents at 8am in Wellington, from 62.85 cents at 5pm yesterday. The local currency slipped to 80.73 US cents from 80.80 cents yesterday as the greenback strengthened after data showed US new home sales rose to a six-year high in August.

The euro weakened after Germany’s Ifo institute showed business confidence in the region’s largest economy this month slid to 104.7, the lowest since April 2013 and below August’s 106.3 level. That adds to Markit’s Composite Flash Purchasing Managers’ Index this week showing Eurozone business activity dipped to a nine-month low this month as firms cut prices for the 30th month in a row. The reports will likely be of concern to the ECB, which is trying to bolster growth and revive inflation, and is in contrast with New Zealand where the Reserve Bank has been raising interest rates to stem inflationary pressures.

“European currencies are worst off this morning, led lower by euro after a depressing business survey out of Germany,” Bank of New Zealand currency strategist Raiko Shareef said in a note. “Germany’s Ifo business survey made for grim reading overnight. Analysts note that this is consistent with German GDP growth of less 1 percent. It was only five months ago when the survey was signalling growth in the region of 3 percent.

“This survey, along with the downbeat signals from Tuesday’s PMI readings, helps to build expectations that the ECB will be forced down the path of sovereign bond purchases before long. For us, it is a depressing indictment of Europe’s woes (and the challenge the ECB faces) that investors are unsatisfied with negative interest rates, a low-cost bank funding program, and an upcoming program of asset-backed security purchases.”

The New Zealand dollar slipped to 90.90 Australian cents from 91.08 cents yesterday. Australian Reserve Bank governor Glenn Stevens is scheduled to speak at an economic forum in Melbourne today.

The kiwi advanced to 49.40 British pence from 49.25 pence yesterday and increased to 88.04 yen from 87.67 yen. The trade-weighted index gained to 78.25 from 78.15 yesterday.

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