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Kiwi gains against Aussie after inflation surprise

Tuesday 25th January 2011

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The New Zealand dollar regained some ground today against the Australian dollar, which was hammered lower after surprisingly soft consumer inflation data this afternoon.

The aussie slipped about half a US cent on the release of figures showing annual core inflation of 2.2% in the December quarter, less than the 2.6% expected and near the bottom of the Reserve Bank of Australia's 2-3% target band.

The data added to perceptions that the bank will not raise interest rates from the current 4.75 percent until later in the year.

That echoes expectations about New Zealand's central bank, which releases its decision on interest rates on Thursday morning. The market is tipping a July rate rise, given the soft state of the economy.

By 5pm, the kiwi was at A76.93c, recovering from an earlier two-week low around A76.30c and above A76.80c late yesterday afternoon.

The NZ dollar also recovered against the euro, having fallen to a five-week low around 0.555 yesterday morning.

It was trading at 0.5602 euro late this afternoon, up from 0.5581 yesterday.

The currency was higher against the greenback, at US76.49c from yesterday's US75.90c, boosted overnight by rallying equity markets.

The kiwi rose to 63.10 yen, from 62.80 yen, and to 47.82p from 47.53p against the pound yesterday.

The trade weighted index was at 68.20 from yesterday afternoon's 67.90.

The euro has recovered about 6% in a two-week rally, benefiting most recently from expectations of a rate rise from the European Central Bank, ahead of the US Federal Reserve, following comments from ECB head Jean Claude Trichet about inflation pressures.

Demand from Asian central banks has generally supported the euro in its recent rally, which followed sharp declines on concerns about growing sovereign debt problems in Europe.



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