Australia, NZ dollars erode against euro, gain on greenback

[SYDNEY] The Australian dollar stood near three-week lows on Wednesday versus a euro hoisted up by remarks from European Central Bank Governor Mario Draghi, which were seen as signalling a change in its super-easy policy stance.

The Aussie fared better against the US dollar and yen - both of which saw heavy selling when Mr Draghi said that deflationary forces had been replaced by reflationary ones.

The euro was at A$1.4916 after jumping 1.5 per cent overnight. Yet against the greenback, the Aussie was up 0.36 per cent at US$0.7606.

It went as high as US$0.7624 on Tuesday but once again failed to breach key chart resistance of US$0.7636.

The Aussie also jumped to a near three-month peak on the yen , continuing its month-long uptrend.

"Draghi's observation that the supply-driven decline in oil prices is holding back core inflation, and thus something that the central bank looks through, is an important one - and hawkish," said Ladislav Jankovic, forex strategist at JP Morgan.

"It implies that low core inflation by itself will not be enough to prevent the ECB from a taper announcement in September. Separately, the comfort with the growth outlook is also emphasised."

But any change in the bank's stance, which includes sub-zero rates and massive bond purchases, should be gradual, Mr Draghi said at an event in Portugal.

His comments sent the euro soaring 1.7 per cent against the New Zealand dollar, the highest daily percentage rise in almost two years, to a two-week high of NZ$1.5616.

On the greenback, the kiwi stood at US$0.7279 after touching US$0.7344 - a level not seen since Feb 7.

"The NZD/USD underperformed overnight despite the USD depreciating against most in the G10. A further unwinding of long positions could see the move extend lower," said Con Williams, economist at ANZ, in a research note.

Government bonds were belted after Mr Draghi's speech, with German two-year yields hitting their highest since last June.

New Zealand government bonds eased, sending yields five basis points higher at the long end of the curve.

Australian government bond futures fell too, with the three-year bond contract off six ticks at 98.130. The 10-year contract tumbled 7.5 ticks to 97.5250.

REUTERS