NZ dollar gains after inflation data fuels appetite for early rate hike

Tuesday 21st January 2014

The New Zealand dollar rose after an unexpected lift in inflation in the December quarter raised the chance of the Reserve Bank hiking interest rates as early as next week.

The kiwi rose to 83.21 US cents at 5pm in Wellington from 82.61 cents at 8am and 82.43 cents yesterday. The trade-weighted index advanced to 79.09 from 78.37 yesterday.

New Zealand's consumers price index increased 0.1 percent in the December quarter against market expectations of a 0.1 percent decline and the Reserve Bank's forecast of a 0.2 percent fall. The headline number was driven by more expensive international and domestic airfares, and has heightened the chances of a rate hike when the Reserve Bank reviews monetary policy next week. Traders are pricing a 46 percent chance of a hike next week, according to the Overnight Index Swap curve.

"We don't think it's a major for the Reserve Bank - it's not stuff they're looking at and we still think March" for a rate rise, said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "The kiwi's still in the middle of its recent range between 81.50 US cents and 84 cents."

Tomorrow's Australian inflation figures may weigh on the trans-Tasman cross-rate, with the kiwi near eight-year highs because of the nations' divergent interest rate paths. Economists expect Australian consumers prices rose 0.5 percent in the December quarter for an annual pace of 2.5 percent, which may quell the need for another rate cut. The kiwi rose to 94.40 Australian cents at 5pm in Wellington from 93.87 cents yesterday.

The local currency gained to 87.06 yen from 85.72 yen yesterday, and advanced to 61.42 euro cents from 60.93 cents. It rose to 50.64 British pence from 50.22 pence.

BusinessDesk.co.nz

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