Kiwi falls as inflation accelerates across the Tasman
BUSINESSDESK: The New Zealand dollar fell to a month-low against its Australian counterpart as the pace of inflation accelerated more than expected across the Tasman and as Chinese manufacturing figures indicate a milder contraction in the region's biggest export market.
The kiwi fell to 78.76 Australian cents at 5pm in Wellington from 79.13 cents, the lowest level since September 12. The currency rose to 81.26 US cents at 5pm from 81.15 cents at 8am and was down from 81.65 cents yesterday.
Australia's annual pace of inflation accelerated to 2% in the September quarter, the Bureau of Statistics says, faster than the 1.5% pace expected in a Reuters survey of economists.
The HSBC flash purchasing managers' index showed a slowing pace of contraction in Chinese manufacturing, easing fears the world's second-biggest economy is heading for a sharp downturn.
That has given traders reason to back down on their bets the Reserve Bank of Australia will cut the target cash rate next month, pricing in a 62% chance of a rate cut, according to the Overnight Index Swap curve, down from an 82% chance yesterday.
"Inflation wasn't large enough to threaten the RBA's inflation target, but economists will be less comfortable with their forecasts," says Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "We still think the long-term trend is down (for the Australian dollar against the kiwi), but the multi-week trend is up."
The upbeat Chinese manufacturing and accelerating pace of inflation across the Tasman gave the kiwi a boost ahead of tomorrow's Reserve Bank of New Zealand meeting.
Economists are unanimous in their expectation governor Graeme Wheeler will hold the official cash rate at 2.5% in his debut review, though they will be looking for any change in the wording of the one-page statement.
"Tomorrow's RBNZ review is critical for the kiwi because of the new man," Mr Speizer says. "Anything could happen because is a new man and we don't know his character."
The New Zealand Debt Management Office sold $2.5 billion of inflation-index bonds, in the first auction of that type of note since 1999. The debt attracted $4 billion of bids, and was sold at real yield of 1.96%. The bonds pay a coupon of 2%.
Markets will also keep tabs on the Federal Open Market Committee's monetary policy review in the US.
Although the US central bank has already embarked on an unlimited third round of printing money, traders are looking to see what happens to the Operation Twist programme, where the Fed bought long-term debt and sold shorter-dated notes.
European Central Bank president Mario Draghi will lobby German politicians to back his bond-buying plan when he meets lawmakers late tromorrow in Berlin.
The plan needs the backing of Europe's biggest economy if it is to succeed in shoring up the books of the region's more indebted members and has already attracted criticism from Germany's Bundesbank.
The kiwi traded at 62.57 euro cents from 62.55 cents yesterday and was almost unchanged at 50.97 British pence from 50.99 pence. It fell to 64.87 yen from 65.19 yen yesterday.
It fell to 81.15 US cents from 81.65 cents at 5pm in Wellington yesterday and the trade-weighted index fell to 72.6 from 72.82.