NZ dollar falls vs. Aussie as Australian inflation beats expectations; Fed, RBNZ loom

Wednesday 27th January 2016

The New Zealand dollar fell against its trans-Tasman counterpart after Australian inflation came in higher than expectations, eroding the chances of another rate cut in Australia.

The kiwi dropped to 92.35 Australian cents at 5pm in Wellington from 92.88 cents immediately before the inflation data, and 92.79 cents yesterday. The local currency traded at 64.74 US cents from 64.99 cents at 8am, and 64.56 cents yesterday.

Bureau of Statistics data showed Australian consumer prices rose at an annual pace of 1.7 percent in the December quarter, more than the 1.6 percent pace predicted. That saw Australia's dollar rally as traders reduced their bets for another rate cut and pushed the kiwi down against its trans-Tasman counterpart. Investors will be watching the policy reviews from the Federal Reserve and Reserve Bank of New Zealand tomorrow.

"The real action was the Aussie CPI (consumer price index) which was stronger than expected - they do have a bit of inflation there," said Sam Tuck, senior foreign exchange strategist at ANZ Bank New Zealand in Auckland. "Those factors drove the kiwi/Aussie lower."

The kiwi had been part of a rally in commodity-linked currencies during the Northern Hemisphere trading session amid speculation oil producers may scale back supply to deflate the current global glut, though a drop in Chinese equity markets and the currency's decline against the Aussie eroded those gains in the local session.

Both the Fed and RBNZ aren't expected to make any policy moves tomorrow, but investors will be watching for any comment on inflation, which is being dragged down by cheap petrol and diesel.

The kiwi got a brief boost from Prime Minister John Key's state of the nation speech, where he announced plans to accelerate transport infrastructure spending in Auckland.

New Zealand's sovereign rating also had its outlook downgraded to stable by Fitch Ratings, which affirmed the nation's AA rating while projecting slower economic growth as dairy prices look set to weigh on the rural sector.

New Zealand's two-year swap rate increased one basis point to 2.64 percent at 5pm in Wellington, and 10-year swaps slipped three basis points to 3.42 percent.

The kiwi rose to 4.2609 Chinese yuan from 4.2469 yuan yesterday, and increased to 76.47 yen from 76.28 yen. It was little changed at 59.57 euro cents from 59.51 cents yesterday, and slipped to 45.15 British pence from 45.38 pence. The trade-weighted index was almost unchanged at 71.29 from 71.27.

BusinessDesk.co.nz

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