NZ dollar little changed ahead of local inflation data

Tuesday 21st January 2014

The New Zealand dollar was little changed ahead of local inflation data which is expected to inform the Reserve Bank's decision when it reviews monetary policy next week, and after a holiday in the US on Monday kept trading volumes light.

The kiwi increased to 82.61 US cents at 8am in Wellington from 82.43 cents yesterday. The trade-weighted index was little changed at 78.45 from 78.37 last week.

New Zealand's consumers price index is forecast to have increased at an annual pace of 1.5 percent in the December quarter, and traders are watching to see whether today's release will deviate from that expectation and impact on the Reserve Bank's plans to hike interest rates. Governor Graeme Wheeler has already indicated rates will rise this year, and most economists expect he will wait until March to start tightening policy.

Even if the inflation report is softer than expectations, "it doesn't take away from the fact the Reserve Bank will be, at some point this year, raising rates," said Stuart Ive, senior adviser at OMF in Wellington. "The kiwi will be going sideways until we get that number."

A 6.2 magnitude earthquake in New Zealand's lower North Island yesterday prompted a short-lived dip in the kiwi which eased after the limited extent of the damage became clearer.

The local currency didn't get much direction from trading in the Northern Hemisphere session due to the US markets being closed for the Martin Luther King holiday.

Chinese economic data yesterday was largely in line with expectations and helped support the Australasian currencies, whose nations count the world's second biggest economy as a major trading partner.

Concerns over China's shadow banking sector have been allayed somewhat by reports the People's Bank of China will provide funding for small and mid-sized banks to help shore up its financial system.

The kiwi gained to 86.04 yen at 8am in Wellington from 85.72 yen yesterday, and was little changed at 93.91 Australian cents from 93.87 cents. It traded at 60.88 euro cents from 60.93 cents yesterday, and was little changed at 50.27 British pence from 50.22 pence.

BusinessDesk.co.nz

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