Wednesday 19th January 2011
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The New Zealand dollar rose slightly today and attention is turning to the release of the Consumers Price Index for the December quarter tomorrow.
By 5pm the NZ dollar was at US77.41c, up from US77.17c at 5pm yesterday. Selling of the NZ dollar against the euro and sterling helped drag the NZ dollar down from US77.40c on Tuesday night but it recovered today.
A current theme is strength in the euro, particularly against the US dollar, though doubts remain about Europe's debt problems.
By 5pm today the NZ dollar was buying 0.5755 euro, down from 0.5768 euro at 8am and 0.5808 at 5pm yesterday.
BNZ currency strategist Mike Jones said encouraging European economic data had seen markets tentatively bringing forward the expected timing of rate hikes by the European Central Bank and the Bank of England.
Dairy commodity prices edged higher at Fonterra's overnight online auction, with the globalDairytrade trade weighted index rising 1.2% and the average winning price up to US$3960 (NZ$5132) from US$3908 a fortnight ago.
The auctions are run fortnightly and the latest auction has reinforced the ongoing story of strong commodity prices.
ANZ said recovering demand and stronger food prices may challenge the challenge the Reserve Bank of New Zealand's benign inflation assessment.
ANZ expect a 2.3% increase in the fourth quarter CPI index, taking annual CPI inflation to 4%. Higher GST is expected to contribute 2 percentage points towards the 2.3% quarterly increase.
"The key for monetary policy will be the extent to which a high headline inflation rate spills over into generalised wage and price-setting behaviour. Given the still weak demand environment, we do not expect much risk of a spillover in the near-term," ANZ said.
BNZ said today that the NZ dollar was expected to trade in a range between US75.00c and US78.50c for the next few weeks.
The ebb and flow of the European debt crisis was making investors "skittish" while the local economy lacked momentum. This implied a break of US78c was a "bridge too far" for the NZ dollar.
The NZ dollar was at A77.13c at 5pm from A77.30c by 8am and A77.73c at 5pm yesterday.
The trade weighted index was 69.20 at 5pm from 69.39 yesterday.
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