ECB increased Euro’s appeal as funding currency

European Central Bank's (ECB) actions of quantitative easing of € 60 billion per month and a deposit rate at -0.20% has fuelled rallies in European bonds, pushing the yields lower across the board. This has also increased the carry trade and rush among companies and investors for cheap funding.

Evaluating yielding currencies -

• Australian currency is one of the top beneficiaries of Euro fueled carry trades. The EUR/AUD pair is currently trading at 1. 41, down from 1.55 in early 2014. The pair may reach to the lower bound of 1.2 experienced during the peak of Euro zone crisis, depending on the actions by Reserve Bank of Australia (RBA).

• Reserve Bank of New Zealand (RBNZ) has kept the interest rates at 3.50%, highest among the developed nations. It has increased rates in its last four out of eight meetings. With ECB on a diverging monetary policy path has fuelled the carry trade against the New Zealand dollar. EUR/NZD is trading at 1.4762, a new all-time low. Euro has fallen from 2.5 against Kiwi since its peak before 2008 financial crisis. The fall could aggravate should the RBNZ hold the rates firm in this week's meeting.

• Canadian dollar has lost some of the charm after Bank of Canada (BOC), sought to ease policy and reduced the rates at 0.75%. Nevertheless scale of actions by the ECB is much larger than of BOC's. This has prompted the EUR/CAD pair to lower lows despite rapid fall in Canadian dollar against USD. EUR/CAD is currently trading at 1.37 down from 1.55 in early 2014.

These currencies are expected to do well against Euro, should the market volatility goes down and rates remain steady in the coming months.