NZ dollar gains vs. pound on BoE view of weak growth with inflation

Thursday 14th February 2013

The New Zealand dollar rose against the British pound, touching a post-float high, after Bank of England Governor Mervyn King said economic growth is likely to remain weak even as inflation stays above the central bank's target.

The kiwi dollar rose to 54.07 British pence from 53.66 pence at 5pm in Wellington yesterday, having earlier risen to 54.14 pence. The local currency traded at 84.01 US cents from 84.10 cents yesterday.

King said in the BoE's Inflation Report that a prolonged period of above-target inflation "must therefore be considered alongside the weakness of the real economy." The pound fell against the euro and the greenback after the report was released.

"Overnight, all eyes were on the UK," said Mike Jones, strategist at Bank of New Zealand. "A toxic mix of lower BoE growth forecasts, but higher inflation took a toll" on the pound.

The kiwi may extend its gains, as "relative growth and monetary policy expectations are both skewed in favour of ongoing NZD/GBP strength," he said. "We forecast 0.5550 by year end."

Traders will be watching for the release of the BNZ PMI report for January today for signs of the strength of the domestic manufacturing sector, which has struggled in the face of a strong New Zealand dollar. The PMI was at 50.1 in December, barely in positive territory at 50.1.

The kiwi fell to 81.24 Australian cents from 81.31 cents yesterday. It traded at 63.49 euro cents from 52.56 cents. The trade-weighted index rose to 76.24 from 76.17.

BusinessDesk.co.nz

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