NZ dollar rises ahead of CPI data

The New Zealand dollar rose slightly today as attention turns to the release of the Consumers Price Index for the December quarter tomorrow.

By 5pm the NZ dollar was at 77.41USc, up from 77.17USc at 5pm yesterday. Selling of the NZ dollar against the euro and sterling helped drag the NZ dollar down from US77.40c on Tuesday night but it recovered today.

A current theme is strength in the euro, particularly against the US dollar, though doubts remain about Europe's debt problems.

By 5pm today the NZ dollar was buying €0.5755, down from €0.5768 at 8am and €0.5808 at 5pm yesterday.

BNZ currency strategist Mike Jones said encouraging European economic data had seen markets tentatively bringing forward the expected timing of rate hikes by the European Central Bank and the Bank of England.

Dairy commodity prices edged higher at Fonterra's overnight online auction, with the globalDairytrade trade weighted index rising 1.2% and the average winning price up to $US3960 ($NZ5132) from $US3908 a fortnight ago.

The auctions are run fortnightly and the latest auction has reinforced the ongoing story of strong commodity prices.

ANZ said recovering demand and stronger food prices may challenge the challenge the Reserve Bank of New Zealand's benign inflation assessment.

ANZ expect a 2.3% increase in the fourth quarter CPI index, taking annual CPI inflation to 4%. Higher GST is expected to contribute 2 percentage points towards the 2.3% quarterly increase.

"The key for monetary policy will be the extent to which a high headline inflation rate spills over into generalised wage and price-setting behaviour. Given the still weak demand environment, we do not expect much risk of a spillover in the near-term," ANZ said.

BNZ said today that the NZ dollar was expected to trade in a range between 75.00USc and 78.50USc for the next few weeks.

The ebb and flow of the European debt crisis was making investors "skittish" while the local economy lacked momentum. This implied a break of 78USc was a "bridge too far" for the NZ dollar.

The NZ dollar was at 77.13Ac at 5pm from 77.30Ac by 8am and 77.73Ac at 5pm yesterday.

The trade weighted index was 69.20 at 5pm from 69.39 yesterday.