Market News: Euro weighed by ECB official talk, Kiwi On Bull Run

Adrian Jones

Adrian Jones

Earlier today the Euro struggled, having been weighed down by recent comments from ECB officials.

ECB Governing Council member and Bundesbank chief Jens Weidmann had said that that negative interest rates remain an option to temper Euro strength.

He also commented that purchasing loans and other assets from banks to support the Euro bloc was not “out of the question.”

This surprised the market as German policy makers had consistently been raising concerns about unorthodox monetary easing.

Most economists though expect no imminent rate move by the ECB at its next meeting on Wednesday.

In the meanwhile, traders will be focusing on Euro zone inflation data due out today and Monday.

If data shows a slowing in inflation, contrary to ECB projections, this would strengthen the case for easing, however I think it unlikely that the ECB will take any big steps next week.

The ECB policy is in stark contrast to that of the U.S. Federal Reserve, which has already begun to wind back its bond purchasing stimulus.

Just a week ago Fed Chair Janet Yellen had commented on the possibility of raising rates early in 2014 should the U.S. economy meet expectations of a continued recovery.

The Euro earlier traded at $1.3744, on track to end lower for a second week in a row, and traded at 140.41 Yen.

The Dollar remained steady at around 102.15 Yen, trading just above the 102 Yen level since Yellen’s comments, while the Yen has shown little reaction to core consumer price data that has signalled that Japan’s economy is making some progress at overcoming 15 years of deflation.

The New Zealand Dollar has proved to be the star of the show earlier today.

The Kiwi was supported by monetary tightening expectations and continued its bull run, touching a 30 month high against the Dollar near $0.8697 and a 6 year high to the Yen of 88.86.

New Zealand seems to be well ahead of every other developed country in normalising policy.

This month the nation raised interest rates from a record low and signalled more tightening.

Click on Image to Enlarge

[Image: Reserve Bank of New Zealand Governor Graeme Wheeler]

The Kiwi had received an extra boost yesterday after New Zealand had posted a NZ$818 million ($709.4 million) surplus in February. This was its largest trade surplus in 3 years.

The Australian Dollar received a boost after markets interpreted comments by Reserve Bank of Australia (RBA) Governor Glenn Stevens about the local economy as bullish. It earlier traded near to a 4 month high of $0.9296.

It appears to me that RBA monetary policy, rather than economic stimulus in China, remains the key driver for the Aussie for the time being.

All the best!

Adrian Jones

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