FOREX-Euro pins hopes on ECB; kiwi bolstered by RBNZ

Dated Posted: 2011-06-09

SYDNEY, June 9 - The euro stayed under pressure in Asia on Thursday, having been thwarted by solid resistance around $1.4700, but any signal of an imminent interest rate hike from the European Central Bank could give the currency a fillip.

The ECB is seen likely to use higher staff inflation forecasts, due at Thursday's post-policy meeting news conference, to justify a case for a tightening in July.

"While the ECB is expected to keep interest rates on hold, (ECB President Jean-Claude) Trichet is expected to signal a rate hike at next month's meeting," said Michael Woolfolk, strategist at BNY Mellon.

Still, Trichet has upset euro hawks in the past.

"The risk is that he fails to mention "strong vigilance" and disappoints the market. Ahead of this event, players are cutting long EUR positions."

The euro last traded at $1.4598 , having lost about one cent after failing to break through $1.4700. It was seen likely to settle into a small trading range ahead of Trichet's news conference due at 1230 GMT.

Immediate support is at $1.4563, the 61.8 percent retracement of the May 4-23 fall, followed by $1.4450, the 50 percent retracement. On the upside, a break above $1.4728 could take it back to the May 4 peak around $1.4940.

The common currency was also hampered by uncertainty about Greece. In a report obtained by Reuters on Wednesday, the EU, ECB and IMF mission to Greece said the next disbursement of Greek aid could not take place until it corrected the under-financing in its adjustment programme.  

This was later followed by a statement from the troika saying Greece will be able to return to fiscal sustainability if it strictly implements economic and financial policies agreed with the EU.

Weakness in the euro saw the dollar climb against a basket of major currencies. The dollar index rose to a high of 73.970, off a one-month low of 73.506 set on Tuesday.

Against the yen, the dollar was steadier at 79.90 , having skidded to a one-month low around 79.693 yen after a series of automatic sell orders were triggered when it broke below 80.00 yen.

Meanwhile, the New Zealand dollar gained more than half a cent to $0.8225 after the Reserve Bank of New Zealand (RBNZ) said interest rates would likely need to rise over the next two years to contain inflation.

RBNZ Governor Alan Bollard said "the pace and timing of (rate) increases will be guided by the speed of recovery." However, he also said he expected the New Zealand currency would gradually decline from its current elevated level.

"It's interesting they've removed the phrase 'rates on hold for some time', it's now contingent on the economic data, so everything is now on the table," said Cameron Bagrie, chief economist at ANZ-National Bank.

"Our core view [of a rate hike] is December, and it remains that way. You wouldn't rule out earlier than that, although the hurdle is horrendously high."

The Australian dollar struggled at $1.0643 , having fallen more than a cent overnight. But further downside may be limited for now ahead of employment data due at 0130 GMT.

Forecasts centre on an addition of 25,000 jobs and the unemployment rate to stay at 4.9 percent.

Any disappointment could see the Aussie retest recent lows just under $1.0600, a break of which could pave the way towards $1.0519, the 76.4 retracement of the May 25-June 3 rise.

 

source : Reuters