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NZ dollar touches record against euro after start of ECB bond-buying programme

16 Mar 2015

The New Zealand dollar touched a record against the euro as the European common currency slumped in the first week of the European Central Bank's bond-buying programme.

The kiwi hit a record 69.96 euro cents on Saturday morning, and was trading at 69.86 cents at 8am in Wellington, from 69.47 cents at 5pm on Friday. The local currency slipped to 73.21 US cents from 73.39 cents at the New York close and 73.75 cents on Friday.

European stocks and bonds have rallied while the euro weakened after the European Central Bank began its quantitative easing programme. The bank is buying 60 billion euros worth of bonds per month, which is prompting some traders to invest elsewhere for better returns. The weaker euro is helping propel the US dollar higher, with the broad US dollar index touching a fresh 12-year high at the weekend.

"The quantitative easing is having the intended consequence on the currency," said Peter Cavanaugh, a client adviser at Bancorp Treasury Services. "European investors are exiting the euro for higher returns elsewhere and you are also seeing foreign investors jumping in and buying into the Eurozone sharemarkets which are going to benefit from this amount of free cash but they are hedging their currency exposure, so therefore the money that is coming in is currency neutral and the money that is coming out is euro negative."

The euro is weakening at a faster rate than many expected, stoking speculation it could reach parity against the greenback. That could propel the kiwi to new records against the euro, Bancorp's Cavanaugh said.

Today, ECB President Mario Draghi is due to speak in Frankfurt.

In New Zealand today, the BNZ-BusinessNZ performance of services index is scheduled for publication.

The New Zealand dollar was little changed at 96 Australian cents from 95.99 cents on Friday. Reserve Bank of Australia assistant governor (financial markets) Guy Debelle is scheduled to speak at the KangaNews DCM Summit in Sydney today.

The local currency was little changed at 49.62 British pence from 49.58 pence on Friday and weakened to 88.88 yen from 89.58 yen. The trade-weighted index slipped to 77.67 from 77.87 on Friday.

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