NZ dollar rises above 72 US cents amid early signs inflation may be stirring

Wednesday 19th October 2016

The New Zealand dollar rose above 72 US cents for the first time in two weeks as stronger-than-expected inflation figures at home and in the UK stoked speculation the era of ultra-low price increases may be ending.

The local currency rose to 72.12 US cents as at 5pm in Wellington, from 71.85 cents late yesterday. The trade-weighted index edged up to 77.29 from 77.10.

Figures yesterday showed UK inflation jumped to 1 percent last month, the highest since November 2014 and up from 0.6 percent in August. That followed New Zealand data yesterday that showed inflation was 0.2 percent in the third quarter, surprising economists expecting no change. The local consumers price index data suggested a rate cut expected from the Reserve Bank next month will be the last of an easing cycle.

"We've had a rash of data around the world suggesting inflation is an inch or two higher than the market was expecting," said Graham Parlane, private client manager at OMF. In New Zealand, third-quarter inflation probably represents the trough for now. We would expect the fourth quarter to be somewhere back up near the bottom of the (RBNZ target) band. The market was ill-positioned for it."

Traders are putting odds of a Reserve Bank rate cut on Nov. 10 at 80 percent, slightly lower than their bets ahead of the consumers price index release yesterday, amid speculation the central bank, which expects to return inflation to the bottom end of its 1 percent-to-3 percent target range in the fourth quarter, is nearing the end of its easing cycle.

The kiwi dollar may trade in a range of 71.70 US cents to 72.30 cents in the next 24 hours, Parlane said.

Helping sentiment for the kiwi dollar, the GDT price index rose 1.4 percent to US$2,965 in the GlobalDairyTrade auction overnight, with whole milk powder rising 2.9 percent to US$2,760 a tonne, a move broadly in line with expectations in the futures market.

The kiwi dollar rose to 94.02 Australian cents from 93.68 cents yesterday and was little changed at 58.71 British pence from 58.76 pence. It rose to 65.66 euro cents from 65.18 cents, gained to 74.87 yen from 74.57 yen and rose to 4.8615 yuan from 4.8428 yuan.

New Zealand’s two-year swap rate fell 1 basis point to 2.08 percent and 10-year swaps were unchanged at 2.70 percent.

BusinessDesk.co.nz

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