NZ dollar falls on December inflation outlook, quake flurry

The New Zealand dollar fell ahead of tomorrow's December inflation figures which are seen as feeding into the Reserve Bank's interest rate outlook, and after an earthquake in the lower North Island caused a brief flurry of selling.

The kiwi traded at 82.43 US cents at 5pm in Wellington from 82.46 cents at 8am, down from 82.62 cents on Friday in New York. The trade-weighted index declined to 78.37 from 78.61 last week.

New Zealand's consumers price index is forecast to have fallen 0.1 percent in the final three months of 2013, for an annual rate of 1.5 percent, according to a Reuters survey. The RBNZ plans to hike interest rates this year to head off the threat of inflation, and investors will be watching the CPI to gauge when governor Graeme Wheeler might start tightening policy. Traders are betting the 2.5 percent official cash rate will rise 109 basis points over the coming 12 months, according to the Overnight Index Swap curve.

"CPI looms large - we know it's a key figure, especially with all the talk being about interest rates at the moment," said Alex Hill, head of dealing at HiFX in Auckland. "It might impact on the tone from Wheeler at the end of the month."

Today's 6.3 magnitude earthquake in the Lower North Island sparked a brief drop in the local currency, which it has since recovered, though Hill said the strength of the US dollar will keep the kiwi under pressure.

Real Estate Institute figures today showed New Zealand's housing market continued to slow in December, with fewer sales and a decline in the median sale price in Auckland, which has been a key driver over the past year.

A BusinessDesk survey of six traders and strategists predicts the local currency will trade between 81.20 US cents and 84.20 cents this week. Four predict the kiwi will fall this week, while one expects it to gain and one sees it largely unchanged.

The kiwi fell to 85.72 yen at 5pm in Wellington from 86.20 yen last week, and declined to 93.87 Australian cents from 94.12 cents. It slipped to 60.93 euro cents from 61.04 cents on Friday in New York, and edged down to 50.22 British pence from 50.34 pence.

(BusinessDesk)