NZ dollar rises to 18-month high against euro

The New Zealand dollar rose to an 18-month high against a broadly weaker euro after the European Central Bank extended its asset purchase programme by nine months and signalled it wasn't about to exit the market.

The kiwi dollar traded at 67.57 euro cents as at 8am in Wellington and earlier touched 67.71 cents, the highest since May 2015. The local currency fell to 71.69USc from 72.10USc  yesterday as the ECB's decision also helped lift the greenback.

ECB President Mario Draghi surprised financial markets by extending the bank's bond-buying programme longer than expected to the end of 2017 while trimming the overall target to €60 billion a month from €80 billion starting April. Draghi said the changes didn't signal a winding down of a quantitative easing programme that has seen the ECB spend more than €1.4 trillion buying bonds. "There is no question about tapering," Mr Draghi said.

"Overnight the US dollar is somewhat firmer across the board, its performance against the euro most telling for markets as traders respond to the ECB's policy update," said Doug Steel, senior economist at Bank of New Zealand.

The kiwi dollar touched a month-high of 72.22USc  yesterday after Reserve Bank Governor Graeme Wheeler gave an upbeat account of New Zealand's economic outlook and said the nation was "probably past the low point for CPI inflation."

That was followed by the government's Half-Year Economic and Fiscal Update (HYEFU), which projected economic growth averaging 3% a year for the next five years, swelling the tax take and allowing the government to increase spending on infrastructure such as Auckland's City Rail Link.

"The rhetoric in the (Wheeler) speech was fairly upbeat with comments noting a positive growth outlook. To us, it was mildly hawkish," said Mr Steel, who anticipates the Reserve Bank will begin hiking interest rates in the first half of 2018.

The kiwi was little changed at 96.16Ac, having climbed to a month high of 96.36Ac yesterday, as the Treasury's stronger economic growth forecasts and Mr Wheeler's upbeat comments contrasted with views of the Australian economy, which shrank a greater-than-expected 0.5% in the third quarter.

The trade-weighted index was at 78.78 from 78.86 yesterday. The kiwi dollar was little changed at 57.01 British pence, fell to 4.9316 yuan from 4.9586 yuan and traded at ¥81.80 from ¥81.77.

(BusinessDesk)