NZ dollar slips after benign inflation data

NZ dollar slips after benign inflation data

By Paul McBeth

Oct. 25 (BusinessDesk) – The New Zealand dollar slipped in local trading after shedding almost half a cent on softer-than-expected inflation, though optimism about Europe’s plan to deal with its sovereign debt woes limited the slide.

The kiwi dollar fell to 80.46 US cents from 80.86 cents at 8am, and was up from 79.17 cents on Friday.

Local inflation was more benign than expected, at a quarterly pace of just 0.4 percent in the three months ended Sept. 30, almost half the 0.7 percent expected. That immediately damped demand for the kiwi, with traders expected the Reserve Bank to keep interest rates on hold for longer, ahead of Thursday’s official cash rate review. They’re betting Governor Alan Bollard will hike the benchmark interest by 40 points over the coming 12 months from its current 2.5 percent, according to the Overnight Index Swap curve.

Still, the prospect European policymakers will reach a deal to sort out the region’s sovereign indebtedness and shore up its fragile banking system has investors upbeat and keen to buy higher-yielding, or riskier, assets. An announcement is expected at either the Wednesday summit or the Group of 20 Nations’ leaders meeting on the weekend.

“No matter what the outcome domestically, significant global moves will dominate” the kiwi, said Imre Speizer, market strategist at Westpac Banking. “The market is just going to yo-yo until something decent happens.”

Speizer said he expects support for the kiwi to hold through this week, and the currency may touch 81.50 US cents before turning around and heading lower.

The Treasury’s Pre-election Economic and Fiscal Update held little for financial markets, with forecasts and the domestic bond programme largely unchanged. The government is expected to return to an operating surplus in the 2014/15 fiscal year, before securing a cash surplus the following year.

Fonterra Cooperative, the world’s biggest dairy exporter, revised down its forecast payout to farmers for the 2011/12 season by 45 cents to $6.30 per kilogram of milk solids. The distributable profit range forecast of between 40 cents and 50 cents per share was unchanged. Chairman Henry van der Heyden blamed the strong New Zealand dollar and softer commodity prices.

The New Zealand dollar fell to 76.78 Australian cents from 77.56 cents on Friday, and rose to 61.17 yen from 60.77 yen on Friday. It gained to 57.80 euro cents from 57.45 euro cents on Friday and increased to 50.26 pence from 50.11 pence.

The trade-weighted index rose to 69.79 from 69.39.

(BusinessDesk)

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