Currency Frenzy Splits Winners, Losers as Draghi Fuels Divide

  • New Zealand dollar climbs most against euro in seven years
  • Outsized price swings abound among major market countries

Mario Draghi, president of the European Central Bank.

Photographer: Martin Leissl/Bloomberg

If you haven’t checked prices in the foreign-exchange market for a few hours, prepare for a shock. Mario Draghi sent the euro and other European currencies skidding while tenders of commodity exporters soared.

The European Central Bank president sparked rallies of 3 percent in the New Zealand dollar, Mexican peso and South African rand against the euro after he said policy makers will investigate fresh stimulus measures to boost the region’s economy. The kiwi climbed the most in seven years against the common currency, while the Brazilian real, Canadian and Australian dollars gained 2 percent.

Developed-market currencies were laggards, with the Danish krone, Swedish krona and Swiss franc falling more than 1 percent against the dollar. The euro sank 2 percent to $1.1107 against the U.S. dollar, the biggest drop since January on a closing basis, when the ECB announced the details of its asset-purchase program.

High yielders led gains versus the euro on Thursday

“The ECB is likely to ease more aggressively than the market thought -- traders have been very enthused by that, and that’s why we’re seeing stocks, commodities and some high-yielding currencies rally,” said Matt Weller, an analyst at Gain Capital Holdings Inc.’s unit in Grand Rapids, Michigan. “The biggest moves have been in the currencies that have beaten down the most,” including the kiwi, he said.

Investors showed demand for riskier assets as U.S. equities strengthened almost 2 percent, while copper gained 1.1 percent. 

The Swiss franc fell the most in two months versus the dollar.

Raw-material exporters have seen a currency rebound in the past month on speculation that the Federal Reserve isn’t going to raise interest rates any time soon. Central banks in Europe and Japan are carrying out unprecedented monetary easing, which tends to depress their currencies.

“The degree of monetary-policy accommodation will need to be reviewed at our December meeting when new macroeconomic projections will be available,” Draghi said after the ECB’s meeting in Malta. “We want to be vigilant.”

The comments gave investors a green light to buy the currencies of commodity-exporting nations, said Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California.

“Markets should expect more liquidity to be pumped into the financial system -- that’s a positive for risk-on types of investments,” Trang said by e-mail.

The kiwi rallied the most since 2008 versus the euro.

The kiwi rallied 3.3 percent against the euro, reaching the biggest gain since October 2008, as of 5 p.m. in New York. The New Zealand dollar was also bolstered by comments from the nation’s finance minister, Bill English, who said the foreign-exchange rate has adjusted quite considerably.

The Mexican peso rose 3.1 percent against the euro, while South Africa’s rand climbed 3 percent.

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