Wednesday 27th July 2011
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The New Zealand dollar rose to a fresh post-float high today but it lost ground against the Australian dollar when that currency rocketed to a new high in reaction to strong inflation data.
The NZ dollar rose to US87.61c, beating the post-float high of US87.40c at 11pm yesterday. It then drifted lower and was at US87.42c by mid-afternoon.
The Australian dollar rose to a 29-year high of $US1.1063 after Australia's consumer price index rose 0.9 percent in the June quarter, beating economists' forecasts for a gain of 0.8 percent.
"The Australian CPI came in a lot stronger than expected," said Mike Hollows, director of trading at HiFX.
"The market was mixed about which way the dice was going to fall but the interest rate market had been pricing in some chance of a rate cut in Australia.
"The strong CPI just blew that out of the water," he said.
As the Australian dollar rose the NZ dollar rose. But it lost ground against the strong Australian dollar, dipping to US78.88c in afternoon trading. It was at A79.13c at 3pm from A79.53c at 8am.
Attention is now focused on tomorrow's Reserve Bank of New Zealand interest rate decision. The current 2.5 percent official cash rate (OCR) is seen as an "emergency" level, set to stimulate the economy at a time of crisis.
National Bank of New Zealand economists are calling for a rise in interest rates after the bank's latest business confidence survey revealed strong confidence and inflationary pressure in the construction sector.
Overall, a net 48 percent of respondents expected general business conditions to improve in 12 months' time in the June survey, which was little changed from a net 47 percent in May.
A net 44 percent of businesses anticipated an increase in activity, up five points on June.
National Bank economists argued that an emergency policy setting for the OCR was no longer required.
"The Reserve Bank of New Zealand's June assumption of subdued construction cost inflation looks wishful thinking," the report said.
Hollows said that "the tricky thing for the RBNZ is how do they raise rates without appreciating the currency".
Also, a warning from President Barack Obama that failure to raise the US borrowing limit by the August 2 deadline would severely hurt the nation has also sparked selling of the US dollar and tarnished its traditional safe-haven appeal.
The US dollar hit a record low versus the Swiss franc, and fell to its lowest level against the yen since mid-March, it lowest level against the Canadian dollar since November 2007, and its lowest level against the Australian dollar since May.
ANZ Bank said Reserve Bank Governor Alan Bollard would no doubt have something to say about the high flying NZ dollar when he reviewed the OCR.
"But when the trend is clearly against the USD, there is not much you can do except follow it."
The current US political indecision demonstrated just how dangerous things could be when there was nothing to analyse, ANZ said.
The trade weighted index was at 74.22 by mid-afternoon from 74.12 at 8am from 74.07 at 5pm.
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