NZ dollar slips after tepid 1Q inflation meets expectations

Thursday 18th April 2013

The New Zealand dollar fell in local trading after tepid first-quarter inflation meet market expectations, and reaffirmed the prospects low interest rates will stay in place.

The kiwi fell to 84.62 US cents at 5pm in Wellington from 85.02 cents at 8am and 84.79 cents yesterday. The trade-weighted index dropped to 77.80 at 5pm from 78.05 yesterday.

Government figures showed the consumers price index rose 0.4 percent in the three months ended March 31, matching expectations, for an annual pace of 0.9 percent. That's the third quarter the annual figure has come in below the Reserve Bank's target range of between 1 percent and 3 percent, and leaves the regulator scope to keep rates lower for longer. Traders are still pricing in 12 basis points of increases to the official cash rate over the coming 12 months, according to the Overnight Index Swap curve.

"Inflation was supposed to be exciting, but it wasn't - it was a very unsurprising report," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "I fancy the kiwi going lower, breaking 84.50 US cents and heading towards 83.80 cents."

Speizer said the weak Chinese data last week "will resonate for some time" and keep investors nervous about backing Australia and New Zealand, who both trade increasingly with the world's second biggest economy.

"The immediate outlook is negative," he said.

Prices of dairy products edged up to a new record at the latest GlobalDairyTrade auction though the rate of gain slowed amid signs the drought is breaking.

The local currency fell to 64.18 euro cents from 64.85 cents yesterday, and dropped to 55.09 British pence from 55.52 pence. It traded at 81.71 Australian cents from 81.78 cents, and gained to 83.19 yen from 82.74 yen.

BusinessDesk.co.nz

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