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Kiwi edges higher while US on holiday

Tuesday 19th January 2010

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The New Zealand dollar edged higher in trading muted by a US holiday ahead of inflation figures tomorrow that are expected to show prices are stronger than the central bank has forecast. 

The Consumer Price Index probably held unchanged in the fourth quarter, according to a Reuters survey, against Reserve Bank Governor Alan Bollard’s forecast 0.2% decline. Economists predict Bollard will raise rates starting in April, rather than the mid-year timing he has flagged. With US markets closed for Martin Luther King Junior Day, investors focused on Europe overnight, and the euro came under pressure amid lingering concerns about Greece’s fiscal position. Still, the Euro-zone was buoyed by the Swiss National Bank, European Central Bank and Hungarian and Polish central banks ending their euro and Swiss franc currency swap agreements.

“The Aussie and the kiwi were the stand-out performers in currency land,” said Imre Speizer, markets strategist at Westpac referring to the trans-Tasman currencies colloquially. “It’s still looking like the kiwi and the Aussie are ready to do a bit more of a pull-back before they advance further.”  

The kiwi rose to 73.90 US cents from 73.60 cents yesterday, and advanced to 66.79 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 66.59. It edged up to 67.05 yen from 66.96 yen yesterday, and was little changed at 79.72 Australian cents from 79.67 cents. It increased to 51.36 euro cents from 51.19 cents yesterday, and climbed to 45.25 pence from 45.01 pence.  

Speizer said the currency may trade between 73.60 U.S. cents and 74 cents today in what he expects to be “fairly lacklustre” trading, and he predicts the kiwi will fall to between 72 cents and 73 cents before it tests last week’s high of about 74.30 cents.  

Consumer demand, hammered by last year’s recession, may revive only gradually.

New Zealand house prices continued to gain last month as the national median price climbed 1.4% to $360,000, according to Real Estate Institute data, but Danica Hampton, currency strategist at Bank of New Zealand, said this was “flattered by a shift to higher-end properties” and the property market recovery was threatened by falling sales.  

“Home sales have now fallen for three consecutive months and are off about 20% from the peak seen in September,” Hampton said. “Not only does this suggest some house price vulnerability, but it also portends some slowing in home-building activity.”  

Property helped underpin New Zealand’s economic recovery last year as record-low interest rates, a shortage of listings, and rising demand from returning expatriates and new migrants fuelled the market’s resurgence through 2009.

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