The New Zealand dollar gained against the euro after the European Central Bank said it would keep interest rates at record lows and loose policy will remain in place for an extended period, widening the divergence with New Zealand where interest rates are expected to resume their track higher following a pause.
The kiwi rose to 63.46 euro cents at 8am in Wellington, from 63.19 cents at 5pm yesterday. The local currency advanced to 84.84 US cents from 84.56 cents yesterday.
The euro weakened after ECB president Mario Draghi said risks to the Eurozone's fragile recovery had increased after Italy slipped back into recession and as a result of the conflict in Ukraine. Draghi signalled the central bank is prepared to print money to buy assets such as government bonds, known as quantitative easing. That suggests European monetary policy will diverge from New Zealand for some time yet, making the kiwi more attractive as a carry trade, where investors borrow in low interest rate countries to invest in countries with higher rates.
"Commentary from ECB president Draghi helped inspire a weaker euro," Kymberly Martin, senior market strategist at Bank of New Zealand, said in a note. "Draghi sounded more down-beat on the economic outlook, leaving the door open for further stimulus measures. He said the bank is about to consult on the purchase of asset back securities."
In New Zealand today, Finance Minister Bill English is scheduled to speak to the Waikato Chamber of Commerce in Hamilton.
