Kiwi falls as weaker commodity prices weigh, inflation figures loom

ANZ economist Sharon Zollner

The New Zealand dollar fell as weaker commodity prices sapped demand for currencies linked to primary production and ahead of local figures expected to show consumer prices rose at their fastest annual pace in more than five years.

The kiwi dropped to 69.99 US cents as at 8am in Wellington from 70.44 cents yesterday. The trade-weighted index declined to 76.11 from 76.47 yesterday.

The Thomson Reuters/CoreCommodity CRB index, a broad measure of prices for raw materials, fell 1.4 percent as weaker prices for oil and iron ore weighed on currencies sensitive to commodity prices including the kiwi, Australian and Canadian dollars. Investors will be watching first-quarter inflation figures which are expected to show the consumers price index rose at an annual pace of 2 percent, the fastest annual pace since September 2011, as more expensive food and energy brings the CPI back to the mid-point of the Reserve Bank's 1 percent-to-3 percent target range.

"Commodity price moves and risk attitudes are likely to be the main driver of the NZD in the near term, with New Zealand's solid growth story hardly new news," ANZ Bank New Zealand senior economist Sharon Zollner said in a note. "That said, this morning's CPI could provide some fireworks if it misses expectations significantly on either side."

Reserve Bank governor Graeme Wheeler has said he's in no rush to move the official cash rate from its 1.75 percent level, while acknowledging heightened geopolitical risks could force his hand either way. The stand-off between the US and North Korea has been weighing on equity markets in recent weeks while the upcoming French election and UK's looming snap election have heightened that uncertainty, stoking demand for safe-haven assets such as gold and Japan's yen. The local currency dropped to 76.18 yen from 76.49 yen yesterday.

The kiwi fell to 65.32 euro cents from 65.69 cents yesterday and declined to 54.75 British pence from 54.90 pence. The New Zealand dollar slipped to 93.30 Australian cents from 93.59 cents yesterday and fell to 4.8181 Chinese yuan from 4.8470 yuan.


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