“If we decide that the current trajectory of our policy is not sufficient to achieve our objective, we will do what we must to raise inflation as quickly as possible,” Draghi told a conference in Frankfurt.
The kiwi hit a month high of 61.77 euro cents following the comments.
“A weak European economy and related weakness in the currency is not good news if you happen to be selling to the Europeans,” Bank of NZ senior economist Doug Steel said.
The ECB next meets on December 3 and Draghi’s comments stoked speculation the bank will add to its stimulus programme to boost inflation and revive the regional economy.
Despite the ECB’s current asset buying programme, inflation rose just 0.1% in October.
The weaker euro is helping make European milk more competitive in international markets, at the same time as the region has more milk available to sell because of the removal of production quotas and as Russian bans on the importation of European products sees supplies diverted elsewhere.
“Europe makes somewhere between six and seven times the amount of milk that NZ makes and it’s the competitiveness of that potential on international markets that creates the wider impact for dairy,” BNZ’s Steel said.
“That’s all come together really in a negative way for international pricing and for NZ.”
Dairy products are NZ’s largest commodity export, followed by meat and Steel said sheep meat exports to European countries were also affected by a weaker regional economy.
“We sell a lot of sheep meat up to continental Europe as well as into the UK,” Steel said.
“To the extent that the UK and European currencies move similarly, so we are seeing softer in-market pricing for lamb in the UK particularly but also in Europe and a weaker Europe just compounds that problem so that’s putting downward pressure on NZ lamb prices.”
The price for a leg of lamb in the United Kingdom, considered a European benchmark, had fallen by about a quarter over the past year to about £1.54 per pound, he said.
Still, tighter supply because of a smaller NZ sheep flock should help support future pricing, he said.
Meanwhile, venison wasn’t hit to the same extent because much of NZ’s production was destined for Germany, which was in a stronger economic position than other European countries, he said.
“If you have a niche product and you are selling to a particular group of consumers that are going okay, then you can still do well in that environment for sure,” Steel said.
Still, BNZ currency strategist Raiko Shareef said much of the ECB easing story may already be built into the euro.
He expects the kiwi could fall to 56 euro cents by the end of the year as the NZ dollar weakens owing to traders eschewing risk in response to the Federal Reserve hiking United States interest rates.
