NZ dollar falls as stronger US inflation pushes greenback to highest in more than 2 weeks

Monday 19th September 2016

The New Zealand dollar fell after figures showed US inflation was twice as strong as expected last month, driving the US dollar index to its highest in more than two weeks on expectations the Federal Reserve will hike interest rates this year.

The kiwi fell to 72.61 US cents as at 8am in Wellington from 73.02 cents on Friday in the US before the inflation data was released. The trade-weighted index declined to 77.73 from 77.99.

The US consumer price index rose 0.2 percent in August versus expectations of a 0.1 percent gain and taking annual inflation to 1.1 percent, while core CPI rose 2.3 percent. The US dollar index rose to 96.11, the highest since Sept. 2. The kiwi gained against the British pound, which was broadly weaker after Bloomberg cited unnamed officials saying UK Chancellor of the Exchequer Philip Hammond was ready to accept that Britain may have to cede membership of the European Union.

The US inflation report "shows pricing pressure continue to build, although very slowly, suggesting the Fed will probably wait until December before increasing rates," said Imre Speizer, senior market strategist at Westpac Banking Corp. The kiwi could yet rebound in the month ahead, pushing above 75 US cents "driven by good NZ economic news, a still-vulnerable US dollar, and yield-chasing inflows" but by year-end it may fall back toward 70 cents "if the Fed tightens in December as we expect."

Traders are awaiting the Federal Open Market Committee’s two-day policy meeting, which ends on Thursday morning New Zealand time for clues to the timing and magnitude of interest rate increases. Investors will also eye the Bank of Japan on Wednesday amid expectations it might ease monetary policy further to help stoke the country’s moribund economy. Just over half of economists surveyed by Bloomberg forecast an expansion of stimulus this week.

Reserve Bank of New Zealand governor Graeme Wheeler is expected to keep the official cash rate at 2 percent when he reviews interest rates on Thursday morning.

The kiwi traded at 55.80 British pence from 55.20 pence in Wellington on Friday, ahead of the Brexit media reports.

The local currency fell to 96.91 Australian cents from 97.21 cents on Friday in Wellington and fell to 4.8483 yuan from 4.8749 yuan. It was little changed at 64.98 euro cents from 65.02 cents and slipped to 74.07 yen from 74.55 yen.

BusinessDesk.co.nz

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