Dollar rises to 6-week high vs € after ECB cuts rates, signals asset purchases

The New Zealand dollar rose to a six-week high against the euro after the European Central Bank unexpectedly cut its three key interest rates, and signalled an asset purchase plan to help kick-start the moribund regional economy.

The kiwi rose as high as 64.30 euro cents, trading at 64.19 cents at 8am in Wellington from 63.27 cents yesterday. The local currency edged down to 83.11 US cents from 83.20 cents yesterday.

The euro dropped after ECB cut the refinancing rate and deposit rate by 10 basis points to 0.05 percent and minus 0.2 percent respectively, surprising markets which were predicting no change. President Mario Draghi also announced plans to start buying at least 700 million euros of asset-backed securities to invigorate a lacklustre European economy and stir inflation in the euro-zone.

"Clearly it's a big move by the ECB and shows it stands read to act further if necessary," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "The kiwi/euro has the potential to run higher from here."

OMF's Ive said the local currency has support at 63.15 euro cents and resistance at 64.60 cents, and can continue to climb against the euro, which has been in an upward channel since August last year.

Traders are watching US employment figures on Friday in Washington for more signs of strength in the world's biggest economy, which will cement expectations the Federal Reserve will start lifting interest rates earlier and faster than previously anticipated, and are also keeping an eye on ceasefire negotiations between Russia and Ukraine, which may ease geopolitical tensions which have been weighing on risk appetite.

OMF's Ive said New Zealand's upcoming general election on Sept. 20 is also weighing on investors, who will pay more attention as the voting day draws nearer.

The local currency rose to 87.39 yen at 8am in Wellington from 87.21 yen yesterday, and fell to 88.84 Australian cents from 89.01 cents. It rose to 50.84 British pence from 50.55 pence after the Bank of England kept monetary policy unchanged. The trade-weighted index gained to 78.95 from 78.67 yesterday.

(BusinessDesk)