Dollar hits fresh record vs € as ECB seen launching QE this week

The New Zealand dollar hit a fresh record against the euro amid heightened expectations the European Central Bank will launch a quantitative easing programme at its meeting this week.

The kiwi touched 67.63 euro cents over the weekend, and was trading at 67.11 cents at 8am in Wellington, from 67.40 cents at 5pm on Friday. The local currency fell to 77.64 US cents from 77.88 cents at the New York close and 78.45 cents in Wellington on Friday.

The euro has weakened ahead of this Thursday's ECB meeting as speculation intensifies that it will launch a bond-buying programme to revive growth in the 18-member currency bloc after the region slipped into deflation last year. Such a money printing programme would increase the amount of euros in circulation, lowering its value against other currencies such as the kiwi.

"The highly anticipated European Central Bank monetary policy announcement is four trading days away," Kathy Lien, managing director of FX strategy at BK Asset Management in New York, said in a note. "Considering the risks of investing in Europe, we don't expect major weakness in the Australian dollar and the New Zealand dollar as the yield differential and relatively steady economic prospects keeps both currencies in demand."

BK's Lien said attention will now turn to the size of the ECB's debt-buying programme.

"It is widely believed that the European Central Bank will announce a 500 billion euro programme but at this stage this could be the minimum that the ECB needs to do to satisfy the market which is where the challenge lies. Investors are already questioning whether 500 billion euros will be sufficient to drag the Eurozone out of its sluggish state of growth and low inflation. So as you can see, the bar is set very high for Thursday's ECB meeting."

In New Zealand today, banks are closed in Wellington to commemorate Wellington Anniversary Day, while in the US markets are closed for the Martin Luther King Jr holiday.

This week, traders in New Zealand and Australia will be focused on the release of key Chinese data tomorrow including fourth quarter gross domestic product as well as December industrial production, retail sales, housing sales, housing starts and fixed investment. On Friday the HSBC China manufacturing flash PMI is due. China is the largest trading partner for both countries.

China's economy may grow as much as 7.3 percent this year, partly due to falling commodity prices, the official Xinhua news agency reported, citing an academic adviser to the central bank's monetary policy committee.

In New Zealand, the NZIER quarterly survey of business opinion is due tomorrow, with fourth quarter inflation and the latest GlobalDairyTrade auction Wednesday and the BNZ-BusinessNZ December PMI and the ANZ-Roy Morgan January consumer confidence reports on Thursday.

The New Zealand dollar fell to 94.35 Australian cents from 95.18 cents on Friday, declined to 51.23 British pence from 51.65 pence and was little changed at 91.21 yen from 91.17 yen. The trade-weighted index weakened to 79.20 from 79.75 on Friday.

(BusinessDesk)