NZ dollar gains as inflation rears its head in Europe

Thursday 5th January 2017

The New Zealand dollar gained as investors latched onto European data showing the region experienced more rapid inflation than expected in December, raising questions about Europe's monetary policy and stoking demand for the euro.

The kiwi rose to 69.56 US cents as at 8am from 69.02 cents yesterday, and the trade-weighted index advanced to 77.33 from 77.13.

The euro gained after data showed consumer prices rose 1.1 percent in December, led by a jump in energy prices. That posed questions about the sustainability of the European Central Bank's ultra-loose monetary policy to revive what's been a moribund regional economy.

"The US dollar got a bit of a push down as euro-zone inflation popped higher than expected," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "There's weakness across the board as people bank profits and taken a lead from the euro-zone data and the kiwi's following suit."

The kiwi may trade between 69.10 US cents and 69.75 cents today, he said.

Minutes to the Federal Reserve's December policy review showed Federal Open Market Committee officials were focused on the potential impact of US president-elect Donald Trump's fiscal policies, which will include large infrastructure spending and major tax reform, and the potential upside risk to interest rates.

Ive said there was a lot of uncertainty about the impact of Trump's policies, though they will likely feature as a major influence on currency markets throughout the year.

The local currency was little changed at 66.31 euro cents from 66.32 cents yesterday and traded at 56.39 British pence from 56.36 pence. It gained to 95.56 Australian cents from 95.34 cents yesterday and advanced to 4.8193 Chinese yuan from 4.8004 yuan. It increased to 81.60 yen from 81.46 yen yesterday.

BusinessDesk.co.nz

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