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Kiwi little changed as Chinese inflation raises fears of slowdown


Its consumer price index rose 2.7% in the second quarter from the same period a year earlier, ahead of an expected pace of 2.5%.

Wed, 11 Jul 2018

The New Zealand dollar was little changed against the greenback after Chinese inflation figures raised fears the world's second biggest economy may be slowing down.

The kiwi was unchanged at 78.03 US cents at 5pm in Wellington from 8am, up from 77.26 cents yesterday. The trade-weighted index gained to 74.69 from 74.21 yesterday.

China's consumer price index rose 2.7 percent in the second quarter from the same period a year earlier, according to the National Bureau of Statistics, ahead of an expected pace of 2.5 percent and sparking fears the central bank may hike interest rates to cool activity.

That tempered any push higher as a rapid sell-off of the kiwi in recent months looks to have run out of steam.

"If China has higher than desirable inflation, it will have to tighten monetary policy and if it tightens, economic growth will slow down," says Michael Johnston, a senior trader at HiFX in Auckland.

"We may have a short pop higher in the kiwi and any decent rallies will see importers sell into it."

He says the currency may touch 78.50 US cents in the near-term, but is still in a long-term trend lower as investors support the greenback on the prospect of the US Federal Reserve winding back its stimulus programme.

Local business confidence held at a three-year high in the June quarter, according to the New Zealand Institute of Economic Research's quarterly survey of business opinion, even though firms reported a slowdown in their own activity.

Official figures showed consumer spending on electronic cards rose more than expected, while property values also rose to a new record at an annual pace of 7.6 percent.

New Zealand's bubbling property market has been a concern of the central bank, and traders are becoming increasingly bullish in their expectations of an early rate hike, pricing in 64 basis points of increases over the coming 12 months, according to the Overnight Index Swap curve.

Mr Johnston says that would be very unlikely and would need the kiwi to fall much further for the Reserve Bank to have confidence a rate hike would not stoke unwarranted demand.

The kiwi gained to 85.49 Australian cents from 85.39 cents yesterday and advanced to 78.55 yen from 78.22 yen. It increased to 60.64 euro cents from 60.29 cents and gained to 52.23 British pence from 51.94 pence.

(BusinessDesk)

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Kiwi little changed as Chinese inflation raises fears of slowdown
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