Kiwi holds gains after softer US inflation

The New Zealand dollar held onto its gains after rising on Friday in New York following weaker-than-expected US inflation, which Federal Reserve chairwoman Janet Yellen says she doesn't expect to persist. An announcement on NZ's next government could come as soon as today.

The kiwi traded at 71.66USc as at 8am in Wellington, little changed from 71.65USc in late New York trading on Friday and up from 71.40USc in Wellington at the end of last week. The trade-weighted index rose to 75.27 from 75.04 last week.

US core CPI inflation rose just 0.1% in September, half the pace expected, for an annual rate of 1.7%, missing the forecast 1.8% rate. Other figures showed US retail sales rose 1.6% last month, also missing expectations, although it beat forecasts for the measure that excludes vehicles and fuel at 0.5%. In New Zealand today traders will be watching for the performance of services (PSI) survey for September and in Asia, Chinese data for consumer and producer prices.

"We open this morning with the US dollar on the back foot after Friday's US inflation data fell short of economists' projections cutting the odds of a December rate hike," traders at HiFX said in a note. "The key domestic drivers for the NZD during the week ahead will be the announcement of the makeup of our new government, possibly as early as tonight and tomorrow morning's quarterly inflation report."

Mrs Yellen told the Group of Thirty's Annual International Banking Seminar in Washington on Sunday that inflation had been "surprisingly low" but her "best guess" was that a strengthening labour market would mean inflation would move higher next year.

Third-quarter consumer prices data is due for release tomorrow in New Zealand. Economists expect inflation was 0.4% in the three months ended September 30, for an annual rate of 1.8%, according to the median in a poll of 13 economists surveyed by Bloomberg. That compares to the central bank's projection of inflation of 0.2% in the third quarter for an annual rise of 1.6%.

National Party leader Bill English says his party exchanged letters with New Zealand First over the weekend and the focus of talks has been on policy rather than ministerial positions, he told the AM Show. NZ First leader Winston Peters has said he expects there will be a new government before the end of the week after his party missed its own deadlines to make a decision.

The kiwi traded at 90.85Ac from 90.93Ac on Friday in New York. It traded at 4.7142 yuan from 4.7135 yuan and at 80.07 yen from 80.13 yen. The kiwi traded at 53.85 British pence from 53.81 pence in New York and at 60.63 euro cents from 60.58 cents.

(BusinessDesk)