The New Zealand dollar rose to its highest in almost seven weeks against the euro on speculation the European Central Bank will ease monetary policy at its meeting next month.
The kiwi touched 63.17 euro cents early this morning, its highest level since March 28, and was trading at 62.98 cents at 8am in Wellington, from 62.72 cents at the 5pm market close yesterday. The local currency was unchanged at 86.30 US cents.
The euro was the worst performing major currency overnight after the ZEW German investor confidence gauge declined for a fifth consecutive month in May to its lowest level since January last year. Adding to declines in the euro, Dow Jones reported that the hawkish German central bank is now willing to back an array of stimulus measures by the European Central Bank next month if needed to fight low inflation.
"For years the Bundesbank has been the most trenchant opponent to extraordinary monetary policy measures," Raiko Shareef, currency strategist at Bank of New Zealand, said in a note. "This reported shift in its mindset lends ECB president (Mario) Draghi considerable support if he decides to cut interest rates in June, or even engage in quantitative easing."
Draghi kept the ECB's interest rate at a record low last month but signalled the bank was ready to act at its next meeting, pending the latest inflation predictions. When inflation is too low, debt becomes harder to services and consumers may put off purchases in the hope that prices will fall.
