Euro Defies Stimulus Bets Before Draghi While Kiwi Bounces Back

  • Premium to sell euro highest since July, risk reversals show
  • New Zealand finance minister `relatively positive' about China

The euro barely budged as traders refrained from making major bets before European Central Bank President Mario Draghi gives a policy update Thursday.

The euro has weakened 0.4 percent versus the greenback in the past week, the smallest decline among 16 major peers after the British pound and Danish krone, while most economists expect the ECB to boost stimulus as early as December. New Zealand’s dollar strengthened for the first time in five days after the nation’s Finance Minister Bill English said the foreign-exchange rate has adjusted quite considerably. Australia’s currency declined after the nation’s biggest lender increased its mortgage rate, fueling speculation policy makers will consider further easing.

“People are avoiding taking any large position,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. “The base case is the ECB will be pretty prepared to do whatever it takes and the market is looking for a reiteration of that commitment.”

The euro fetched $1.1336 as of 6:10 a.m. in London, compared with $1.1339 Wednesday. The relative cost of protecting against a euro decline versus the U.S. currency increased for a sixth day to 0.64 percentage point, heading for the most since July 17, according to data on one-month risk reversals. The extra cost dropped to an almost two-year low of 0.09 percentage point on Aug. 25, a day after the single currency peaked, closing-price data compiled by Bloomberg show.

FOMC Meeting

The Bloomberg Dollar Spot Index was little changed at 1,196.61, halting a five-day gain. Futures traders predict the Federal Open Market Committee, which meets next week, will hold interest rates until at least March.

“The magnitude of depreciation is quite small,” said Joseph Capurso, a Sydney-based strategist at Commonwealth Bank of Australia. “Euro might test $1.10 before the end of the year, but it would probably need the FOMC to turn more upbeat for that to happen.”

In the run-up to the meeting in Malta, Draghi and most of his Governing Council have said it’s too early to decide whether to expand their 1.1 trillion-euro ($1.2 trillion) bond-buying program.

Kiwi Advances

The kiwi climbed 0.8 percent to 67.61 U.S. cents after a four-day, 2.1 percent decline. English said at a conference in Sydney Thursday that he was “relatively positive” on the part of China’s economy that matters to New Zealand. China is the South Pacific nation’s biggest trading partner.

The Australian dollar fell 0.1 percent to 72.04 U.S. cents after Commonwealth Bank of Australia said it raised its standard variable mortgage rate to help offset the cost of stricter capital rules. The currency had earlier strengthened by as much as 0.4 percent to 72.40 cents.

“The Australian dollar’s decline was due to the news that CBA is raising their mortgage rate,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The market is reading that as increasing the odds of a rate cut from the RBA.”

Swaps traders increased the odds of Australia’s central bank cutting rates by year-end to about 50 percent, from 45 percent Wednesday, according to data compiled by Bloomberg.

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