SYDNEY The euro nursed broad losses early on Friday, while a rally in dollar-bloc commodity currencies drove the New Zealand dollar to its highest against the greenback in over two years.
The euro last traded at $1.3743, having plumbed three-week lows of $1.3728 overnight, and on track to end lower for a second straight week.
Against the yen, the common currency slipped to three-week lows of 140.19. It also lost ground against many of its global peers partly on recent dovish talk from a string of European Central Bank (ECB) officials.
Peripheral European government bond yields hit a multi-year trough on Thursday while the premium that U.S. two-year debt pays over German paper widened to the most since late 2012.
Comments this week that added weight to the argument for more ECB action came surprisingly from Germany, whose policymakers have repeatedly voiced concerns about unorthodox monetary easing.
ECB Governing Council member and Bundesbank chief Jens Weidmann said negative interest rates were an option to temper euro strength and buying loans and other assets from banks to support the bloc was not out of the question.
Traders said inflation data out of the euro zone due later on Friday and on Monday will be closely watched.
"ECB policymakers have consistently signalled openness to easing if certain conditions are met. Further slowing in inflation, contrary to ECB's projections, would help build the case for further easing, even if a move at the April meeting remains rather unlikely," analysts at BNP Paribas wrote in a note to clients.
"Our positioning analysis also suggests that markets remain slightly long EUR on the net basis, offering plenty of scope for a rebuilding short EUR and long USD positions."
An overwhelming majority of economists polled by Reuters expect no imminent rate move. Asked what the ECB will do at its April 3 meeting, only two of 72 economists predicted a rate cut, versus 26 of 78 who did before last month's meeting.
In contrast, the Federal Reserve has already started to wind back its bond-buying stimulus and last week new Fed Chair Janet Yellen suggested the possibility of raising rates early next year if the economy continued to recover as expected.
Well ahead of every other developed country in normalising policy is New Zealand, which this month lifted interest rates from a record low and flagged more tightening in the pipeline.
Unsurprisingly, the kiwi has been among the strongest performers in recent months. It rose as far as $0.8686 overnight, a high not seen since August 2011, after breaking above its 2013 peak of $0.8676.
Against the yen, the kiwi hit a six-year high of 88.73.
It's dollar-bloc counterparts also gained a bid with the Australian dollar rising to a four-month high of $0.9272, while the Canadian dollar climbed to a three-week high of C$1.1013 per USD.
The rally in commodity currencies also reflected investor appetite for emerging market currencies led by the Brazilian real, which posted its biggest one-day gain against the greenback since November.
Worries about recent volatility in the Chinese yuan appeared to have eased as well.
(Editing by Shri Navaratnam)