Kiwi climbs to week-high as US inflation figures and government awaited

The New Zealand dollar rose to a week-high as upcoming US inflation data will give a clearer steer on whether the Federal Reserve will hike interest rates as aggressively as expected, and as NZ First prepares to weigh up which party to back in forming the next government.

The kiwi gained to 71.34 US cents as at 8am in Wellington from 71.04 cents yesterday. The trade-weighted index advanced to 75.03 from 74.74.

Minutes to the Federal Open Market Committee's Sept. 19-20 meeting released this week showed policy-makers held concerns about the strength of inflation in the world's biggest economy, raising questions about the pace and timing of future interest rate hikes. Upcoming US consumer price index figures are expected to show the annual pace of inflation accelerating to 2.3 percent, although the recent hurricanes make it harder for economists to interpret the data. Meanwhile, it's still unclear whether NZ First will back a National-led or Labour-led government, with the party's board set to weigh up the options this weekend.

Sharon Zollner, a senior economist at ANZ Bank New Zealand, said in a note the kiwi dollar brushed aside the political uncertainty and ascendant greenback, and was close to the 200-day moving average of 71.60 US cents,

"We expect that resistance level to hold for now, although tonight's US CPI figures will be key," she said. "There will no doubt be some volatility on any government formation announcement, but we are still of a 'sell rallies' mindset."

Domestically, the Business New Zealand-BNZ performance of manufacturing index will be watched, with the recent run of local data showing a slowing in the pace of economic growth.

The kiwi increased to 53.74 British pence from 53.59 pence yesterday amid reports European Union chief negotiator Michel Barnier said negotiations with the UK on its exit from the regional bloc hit an impasse over what Britain owed when it left. The local currency gained to 60.27 euro cents from 59.82 cents yesterday, recovering from a 17-month low after a string of strong German data spurred expectations the European Central Bank would unwind its ultra-loose monetary policy earlier than anticipated.

The kiwi rose to 91.13 Australian cents from 90.86 cents yesterday ahead of the Reserve Bank of Australia's financial stability review and climbed to 4.6968 Chinese yuan from 4.6794 yuan in the lead-up to Chinese trade data. The kiwi rose to 80.75 yen from 79.81 yen yesterday.

(BusinessDesk)