Euro Holds Slide on ECB Dovish View as Aussie Climbs After RBA

  • Markets anticipate tone of ECB President Draghi on Oct. 22
  • Aussie dollar climbs after central bank meeting minutes

The euro held a three-day drop, its longest stretch of losses this month, on speculation European Central Bank President Mario Draghi will keep further monetary stimulus on the table when policy makers meet on Thursday.

The single currency has weakened against 13 of 16 major peers this month as economists predict the ECB will ease in December. The Australian dollar strengthened for the first time in three days as traders reduced bets for further easing after the central bank said interest-rate cuts this year continue to support demand. Canada’s dollar extended a two-day drop after Justin Trudeau’s Liberal Party swept into office with a surprise majority, ousting Prime Minister Stephen Harper.

“The ECB will certainly keep talking about the prospect as well as readiness and willingness to ease further if necessary,” said Raiko Shareef, a markets strategist in Wellington at Bank of New Zealand Ltd. “That’s been quite an effective tactic of keeping euro capped.”

The euro was little changed at $1.1334 as of 6:45 a.m. in London, holding a three-day, 1.3 percent drop. Europe’s 19-nation currency bought 135.42 yen, little changed from Monday. The dollar was at 119.48 yen from 119.50 on Monday.

ECB officials are likely to step up quantitative easing by year-end, with more than half of the 43 economists surveyed by Bloomberg predicting a December move. A report last week showed the euro area’s inflation rate turned negative in September for the first time in six months, increasing pressure on the central bank to add to its 1.1 trillion-euro ($1.2 trillion) asset-purchase plan.

Draghi Waits

“The risks to the Eurozone economy are coming from the external environment, particularly the slowdown in emerging markets and the lift in the EUR trade‑weighted index,” wrote Jarrod Kerr, a Sydney-based interest rate strategist at Commonwealth Bank of Australia. “The dovish rhetoric should continue given the global backdrop and downside skew in the risks.”

A Deutsche Bank AG trade-weighted index for the euro has climbed about 5 percent since this year’s low in March.

Concerns that a slowdown in Chinese growth will drag down global economic activity continued after data Monday showed a slowing expansion in the Asian nation.

The Aussie dollar climbed 0.4 percent to 72.73 U.S. cents, halting a two-day, 1.1 percent decline. Swaps traders reduced the odds of Australia’s central bank cutting rates next month to 37 percent, from 46 percent Monday, according to data compiled by Bloomberg.

Aussie Advances

Interest-rate cuts earlier this year continue to support demand while a weaker currency is helping the economy rebalance from resources to non-mining activity, the Reserve Bank of Australia said Tuesday in minutes from its latest board meeting, when it kept the benchmark interest rate at a record-low 2 percent for a fifth month. Growth likely strengthened in the third quarter, assisted by a pickup in resources exports and housing investment, the central bank said.

“The market pricing for the risk of a November RBA rate cut should reverse, and higher front-end yields will assist to support a firmer Australian dollar,” said Richard Grace, chief currency and rates strategist and head of international economics at Commonwealth Bank of Australia in Sydney.

Canada’s loonie, named for the image of the aquatic bird on the C$1 coin, dropped 0.1 percent to C$1.3035 per U.S. dollar.

The country’s Liberals dominated the east coast and Elections Canada results showed them surging in Quebec and Ontario, well above what polls had projected, due in large part to a collapse of the other main opposition party, the New Democrats. The results ended nearly 10 years of Conservative rule.

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