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Euro New Zealand Dollar (EUR/NZD) Exchange Rate Falters After Disappointing German Inflation

Weak German Inflation Limits Euro New Zealand Dollar (EUR/NZD) Exchange Rate Gains

With the Eurozone economy continuing to demonstrate strength in its fourth quarter gross domestic product data the Euro to New Zealand Dollar (EUR/NZD) exchange rate to make fresh gains.

Both Spain and France posted strong individual growth figures, meanwhile, adding to the more bullish outlook of the currency union.

As Bert Colijn, Senior Economist at ING, noted:

‘Economic growth has shifted to a substantially faster growth path over the course of 2017, and current GDP data confirms that. Eurozone growth for 2017 as a whole was stronger than many advanced markets, like the US and UK for example.

‘While detailed breakdowns have yet to be released, it seems that the Eurozone economy continues to fire on all cylinders. Investment has yet to fully recover from the crisis but has been an essential contributor to growth during the year.’

However, the mood towards the Euro soured markedly once January’s German consumer price index was found to have contracted -0.7% on the month.

New Zealand Dollar (NZD) Strengthens on Surprise Trade Surplus

While the New Zealand trade balance unexpectedly returned to a state of surplus in December this was not enough to dent the EUR/NZD exchange rate for long.

Even as export volumes showed a larger uptick on the month than forecast the mood towards the New Zealand Dollar (NZD) remained relatively muted.

This was largely the result of a decline in wider market risk appetite, with demand for higher-yielding assets diminishing as investors brace for the Federal Reserve policy meeting and latest State of the Union address.

With the US Dollar (USD) recovering from its recent bearish run NZD exchange rates have naturally come under renewed pressure, with confidence in the domestic outlook still generally limited.

As a result, with the Reserve Bank of New Zealand (RBNZ) looking set to leave monetary policy on hold for the foreseeable future, there was little reason to favour the New Zealand Dollar.

Disappointing Eurozone Inflation Forecast to Dent EUR/NZD Exchange Rate

The GBP/NZD exchange rate could see further gains on the back of Wednesday’s Eurozone consumer price index report, providing inflation strengthens once again.

Signs that price pressures within the currency union are building may encourage European Central Bank (ECB) policymakers to take a more hawkish stance in the coming months.

Given the more optimistic nature of recent policymaker comments a strong showing here could boost bets that the ECB’s long-running quantitative easing program may come to an end sooner rather than later.

On the other hand, if inflation fails to pick up further on the year this is likely to leave the Euro on a softer footing.

Any dovishness on display in upcoming ECB policymaker speeches could also see the EUR/NZD exchange rate falter.