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NZ dollar pares CPI gains as greenback rises, wait for govt continues

Tuesday 17th October 2017

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The New Zealand dollar was little changed, paring the gains it made on stronger-than-expected inflation data, as the greenback strengthened in Asian trading. 

The kiwi was trading at 71.64 US cents as at 5pm versus 71.65 US cents as at 8am in Wellington and 71.72 cents late yesterday. The trade-weighted index was at 75.39 from 75.30 yesterday.

The New Zealand dollar touched 72 US cents after the consumer price index rose 0.5 in the three months ended Sept. 30 while annual inflation was 1.9 percent. Economists had expected inflation to be 0.4 percent in the three months ended Sept. 30, for an annual rate of 1.8 percent, according to the median in a poll of 13 economists surveyed by Bloomberg. That compares to the central bank’s projection of inflation of 0.2 percent in the third quarter for an annual rise of 1.6 percent.

While inflation was higher, economists aren't expecting any change in the central bank's outlook for interest rates.  ANZ Bank New Zealand senior economist Phil Borkin said there are "tentative signs" of domestic price pressures building, however, "with core inflation measures broadly stable, and future inflation signals mixed, we see few implications for the monetary policy outlook," he said. 

The kiwi pared its post-inflation gains as the US dollar gained some traction in Asia. Westpac Bank senior strategist Imre Speizer said investors may have been cheered by reports that US President Donald Trump is favouring Stanford economist John Taylor to head the Federal Reserve as he is considered more hawkish than Janet Yellen. 

Looking ahead, the overnight global dairy trade auction may garner some interest with the futures pointing to a 3 percent rise, said Speizer. However, ongoing talks to form a new government will remain a key driver for the kiwi, said Speizer. 

"The market will react to the formation of a new government, that is going to be one of the main influences over the kiwi," he said. The market had been expecting an announcement on the next government as early as yesterday but today Winston Peters said there is still work to be done with both parties before NZ First can make a decision, according to the New Zealand Herald.  Peters said further discussions were needed with the leaders of both National and Labour.

The kiwi rose to 91.26 Australian cents from 91.06 cents yesterday. It traded at 4.7290  yuan from 4.7170 yuan and at 80.27 yen from 80.26 yen. The kiwi traded at 54.04 British pence from 53.96 pence and at 60.81 euro cents from  60.75 euro cents.

New Zealand's two-year swap rate rose 1 basis point to 2.19 percent and 10-year swaps were unchanged at 3.19 percent.

(BusinessDesk)

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