NZ dollar falls against Aussie as Australian inflation beats expectations

The New Zealand dollar fell against its transtasman counterpart yesterday after Australian inflation came in higher than expectations, eroding the chances of another rate cut in Australia.

The kiwi dropped to 92.35Ac   at 5pm in Wellington from 92.88Ac  immediately before the inflation data, and 92.79Ac cents . The local currency traded at 64.74USc from 64.99USc cents at 8am yesterday and 64.56USc the day befre yesterday.

Bureau of Statistics data showed Australian consumer prices rose at an annual pace of 1.7%  in the December quarter, more than the 1.6%  pace predicted. That saw Australia's dollar rally as traders reduced their bets for another rate cut and pushed the kiwi down against its transtasman counterpart. Investors will be watching the policy reviews from the Federal Reserve and Reserve Bank tomorrow.

"The real action was the Aussie CPI (consumer price index) which was stronger than expected – they do have a bit of inflation there," said Sam Tuck, senior foreign exchange strategist at ANZ Bank New Zealand in Auckland. "Those factors drove the kiwi/Aussie lower."

The kiwi had been part of a rally in commodity-linked currencies during the northern hemisphere trading session amid speculation oil producers may scale back supply to deflate the current global glut, though a drop in Chinese equity markets and the currency's decline against the Aussie eroded those gains in the local session.

Both the Fed and Reserve Bank aren't expected to make any policy moves tomorrow, but investors will be watching for any comment on inflation, which is being dragged down by cheap petrol and diesel.

The kiwi got a brief boost from Prime Minister John Key's state of the nation speech, where he announced plans to accelerate transport infrastructure spending in Auckland.

New Zealand's sovereign rating also had its outlook downgraded to stable by Fitch Ratings, which affirmed the nation's AA rating while projecting slower economic growth as dairy prices look set to weigh on the rural sector.

New Zealand's two-year swap rate increased one basis point to 2.64%  at 5pm in Wellington yesterday, and 10-year swaps slipped three basis points to 3.42%.

(BusinessDesk)