Kiwi dips as benign inflation, RBA outlook pushes rates lower

BUSINESSDESK: The New Zealand dollar fell in local trading as a more benign than expected inflation report and a weaker Australian economic outlook trimmed the appeal of the currency.

The kiwi fell as low as 81.40 US cents and traded at 81.57 cents at 5pm in Wellington, down from 81.82 cents at 8am and up from 81.43 cents yesterday. The trade-weighted index was unchanged at 72.80.

New Zealand's 90-day bank bill rate fell 5 basis points to 2.65% and the two-year swap rate declined 7 basis points to 2.47% after consumer prices rose at a slower than expected pace of 0.3% in the September quarter.

That took annual inflation to 0.8%, below the Reserve Bank's target band of between 1% and 3%. The data comes before new central bank governor Graeme Wheeler delivers his first official cash rate review next week.

The OCR review "is a real focus regardless of what inflation is doing right now. Tthere are a whole lot of questions about the new governor and whether the new policy target agreement is something we should read a lot into," says Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney.

Minutes from the Reserve Bank of Australia's October 2 meeting show the board sees an "increased likelihood of growth over the coming year being somewhat weaker than earlier forecast".

Australia has been dealing with a slowdown in its resources industry, a sector that helped it avoid recession during the global financial crisis. The kiwi fell to 79.46 Australian cents from 79.81 cents yesterday.

Mr Tennent-Brown says the main focus for the trans-Tasman currencies this week will be the dump of Chinese data on October 18, which is expected to show slowing economic growth in the world's most populous nation.

CBA expects the Australasian currencies will end the year higher, with their respective economies in better shape than Europe, which is dealing with a sovereign debt crisis, and the US, which faces massive austerity if policymakers cannot address the so-called "fiscal cliff" after next month's presidential election.

With trading volatility at the lowest level since before the 2008 global financial crisis, "the fundamentals of the Australian and New Zealand dollars will keep flowing through and the currencies will stay strong", he says.

The rose to 64.28 yen from 63.87 yen yesterday and slipped to 62.92 euro cents from 63.08 cents. It was little changed at 50.76 British pence from 50.74 pence yesterday.