Kiwi holds gains on optimism ECB will take action

BUSINESSDESK: The New Zealand dollar held its gains after joining a rally in “risk proxies” such as the kiwi on speculation the European Central Bank may act to bolster the common currency.

The kiwi traded at 80.19 US cents, a level it jumped to after ECB president Mario Draghi said his policy makers will do whatever it takes to support the euro, from 79.11 cents the previous day. The trade-weighted index held at 72.35 from 71.84 yesterday.

The ECB announces its review of monetary policy next week and there’s speculation it may intervene in bond markets, where yields of indebted eurozone countries have been climbing.

Mr Draghi told the Global Investment Conference in London this week that the ECB will do all it can within its mandate he was confident “it will be enough”.

“Risk proxies like the kiwi are being bid up on increasing speculation the ECB will intervene,” said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.

She said the Reserve Bank’s statement this week when it kept the official cash rate at 2.5% was “less dovish than expected” and the kiwi had retraced some losses over the week.

Bank governor Alan Bollard said this week the domestic economy was expected “to grow modestly over the next few years”. Inflation would quicken back to about the middle of its range.

Shares gained across Asia, joining stronger equity markets in the US and Europe after Mr Draghi’s comments.

Ms Trinh said the trading range for the kiwi through the end of this week may be 79.75 US cents to 80.55 cents.

The US was scheduled to release preliminary figures for second-quarter gross domestic product on Friday, with the data is expected to show annualised growth of 1.4% in the second quarter, slowing from 1.9% three months earlier.

The kiwi traded at 76.99 Australian cents, down from strengthened to 77.16 cents earlier in the day but up from rom 76.65 cents yesterday.

It was at 62.74 yen from 61.82 yen the previous day. The local currency was little changed at 51.14 British pence and rose to 65.25 euro cents from 65.17 cents.