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Sydney - The euro weakened to a seven-month low after futures traders added to bearish bets and European Central Bank (ECB) President Mario Draghi encouraged speculation his board will ease policy next week.
Europe’s common currency dropped versus the majority of its 10 developed-market peers after Draghi said Friday the ECB will do what it must to raise inflation “as quickly as possible.”
The Governing Council meets in Frankfurt on December 3 for its next monetary-policy decision. Hedge funds ramped up wagers on dollar strength last week by the most since August 2014. The Australian dollar tumbled as copper and nickel prices plunged to multi-year lows.
“It’s probably reasonable to think we can spend time down below $1.05 now,” for the euro, said Ray Attrill, co-head of currency strategy at National Australia Bank in Sydney. “It looks to me like we’re building up into a fairly classic sell the rumour, buy the fact.”
The euro slid 0.2% to $1.0623 at 08:46 on Monday. It earlier touched $1.0601, the lowest since April 15. The shared currency traded at ¥130.83 after declining 0.9% to ¥130.77 at the end of last week. The dollar rose 0.3% to ¥123.17. Japanese markets are shut for a holiday.
‘Commodity washout’
The Aussie dollar dropped 0.8% to 71.79 US cents, following a two-week, 2.8% advance. Copper fell through $4 500 for the first time since 2009, while nickel dropped to the lowest level since 2003 after Chinese smelters announced plans to cut production.
“The commodity washout is weighing on Aussie sentiment," Stephen Innes, a Singapore-based senior trader at foreign- exchange broker Oanda, wrote in an e-mail.
New Zealand’s dollar weakened 0.7% to 65.17 USc. Swaps traders increased the odds the Reserve Bank will cut its benchmark interest rate next month to 55%, from 46% a week ago, according to data compiled by Bloomberg.
“A mix of US dollar strength and rising expectations of more RBNZ rate cuts” dragged the kiwi lower, said Elias Haddad, a currency strategist at Commonwealth Bank of Australia in Sydney.
“The accumulation of unimpressive New Zealand economic data and declining dairy prices are weighing on short-term swap rates.”
New Zealand’s currency will depreciate to 59c by the middle of next year, he said.
Speculative positions
Large speculators increased bets that benefit from a decline in the euro to a net 164 177 contracts, the most since June, in the week through November 17, data from the Commodity Futures Trading Commission showed on Friday.
The net long position in the dollar versus eight major peers climbed by 92 293, the data show.
Draghi said last month that ECB policy makers would review the degree of monetary stimulus at their December meeting. Since then, the euro has weakened about 6% versus the dollar as traders increased bets that officials may extend the bond-buying program or further cut the deposit rate.
The euro is now pricing in a cut in the deposit rate and some “intensification” of quantitative easing, NAB’s Attrill said. “There is a chance that the ECB could underwhelm expectations next week now.”
Goldman Sachs Asset Management reduced a position betting the euro would decline against the dollar “as central bank actions are increasingly priced in to both markets,” it said in a note issued to clients.
