The New Zealand dollar rose after European Central Bank President Mario Draghi announced a bond-purchase plan to cap borrowing costs in the area's most-indebted nations, stoking optimism the region will get through its sovereign debt crisis and pushing stock markets higher.
The New Zealand dollar rose to 80.10 US cents at 8am in Wellington up from 79.56 cents yesterday at 5pm. The trade weighted index increased to 72 from 71.62.
Draghi kept his pledge to do "whatever it takes" to safeguard the euro as policymakers agreed on an unlimited debt-buying programme, targeting government bonds with a maturity of one to three years. Conditions of the agreement are yet to be finalised.
Stock markets on both sides of the Atlantic rallied on the news. German's DAC 30 climbed 2.9 per cent, while Wall Street's Standard & Poor's 500 Index rose 1.9 per cent and the Dow Jones Industrial Index gained 1.8 per cent.
"Given the reaction in equity markets we would be looking at a positive day following through to risk currencies," such as the New Zealand dollar, said Tim Kelleher, head of institutional FX sales NZ ASB Institutional. "Certainly the initial reaction from Europe has been good - there are conditions attached to anyone who wants a bailout though."
