NZ dollar declines ahead of inflation data as RBNZ seen remaining on hold

Wednesday 21st January 2015

The New Zealand dollar declined ahead of consumer prices data due this morning which is expected to show annual inflation dipped below the Reserve Bank's target, likely keeping interest rates on hold for an extended period.

The kiwi fell to 76.74 US cents at 8am in Wellington, from 77.17 cents at 5pm yesterday . The trade-weighted index weakened to 78.58 from 78.85 yesterday.

The New Zealand consumer price index probably accelerated at a 0.9 percent annual pace in the fourth quarter, below the RBNZ's 1 percent-to-3 percent target, with zero inflation compared with the third quarter, according to a Reuters poll of economists. That's likely to keep the central bank on the sidelines for longer than previously forecast.

"Markets are looking forward to this morning's CPI," said ANZ Bank New Zealand senior FX strategist Sam Tuck. "Markets are expecting that to remain very subdued and for that then to feed in to RBNZ policy decisions next week."

The next Reserve Bank meeting is Jan. 29. ANZ expects interest rates to remain on hold until at least late next year.

Also weighing on the kiwi, ANZ yesterday cut its expectations for Fonterra Cooperative Group payout for the 2014/15 to $4.35 per kilogram of milksolids, from a previous estimate of $4.75/kgMS. That's below Fonterra's own forecast of $4.70/kgMS, down from last season's record $8.40/kgMS.

An increase in prices at Fonterra's latest GlobalDairyTrade auction overnight isn't enough to change that view, said the ANZ's Tuck.

The GDT average winning price increased 1 percent to US$2,758, up from US$2,709 two weeks ago. Some 31,326 tonnes of product was sold, down from 33,669 tonnes of product two weeks ago.

Demand for the local currency has also cooled following weaker Chinese growth data yesterday. Official Chinese data showed the world’s second biggest economy grew at a 7.3 percent annual pace in the December quarter, its slowest pace of growth since 1990. China is New Zealand's largest trading partner.

ANZ expects the kiwi to trade between 76.20 US cents and 78 cents today.

The New Zealand dollar declined to 93.92 Australian cents from 94.46 cents yesterday, dropped to 66.42 euro cents from 66.63 cents, slipped to 50.61 British pence from 51.20 pence and edged lower to 91.11 yen from 91.19 yen.

BusinessDesk.co.nz

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