Kiwi tumbles vs pound on Bank of England rate hike view

The New Zealand dollar fell to a four-month low against the pound after the Bank of England said it may hike interest rates in coming months and declined against the greenback as the latest political poll put the Labour Party back on top.

The kiwi dollar dropped to 53.82 British pence as at 8am in Wellington and earlier touched 53.64 pence, the lowest since late May, from 54.87 pence late yesterday. It fell to 72.11USc from 72.54USc.

The pound surged 1.4% against the greenback after the BoE kept its bank rate unchanged at 0.25% but said it may be appropriate to reduce some monetary stimulus in the "coming months." The overnight interest swaps market is putting odds on a hike at the bank's November meeting. In the US, CPI inflation was a stronger-than-expected 0.4% in August, stoking talk of a third rate hike by the Federal Reserve this year. The kiwi initially dipped after a 1News Colmar-Brunton poll put Labour on 44% support to National's 40%, while a poll of polls had them level pegging.

The pound "surged after a more hawkish than expected BoE announcement," said Jason Wong, a currency strategist at Bank of New Zealand. "A BoE hike in November would support the theme that major central banks around the world are intent on returning policy back to more normal settings."

He said the prospect of a Fed rate hike in December "has been kept alive by US CPI data coming in slightly ahead of expectations, after a five-month streak of running below expectations. The data suggest some merit in the Fed's view that the recent fall in inflation might have been temporary."

Today traders will be watching for Real Estate Institute house sales data for August for a read on whether the property market is cooling, while the BusinessNZ-BNZ manufacturing PMI report is also out for August.

The kiwi fell to 90.31Ac from 90.53Ac yesterday when figures showed the Australian economy added 54,200 jobs in August, more than twice as many as forecast, while the un employment rate held at 5.6%.

The trade-weighted index was at 75.24 from 75.57.

The kiwi declined to 79.70 yen from 80.03 yen late yesterday and fell to 4.7246 yuan from 4.7413 yuan. It dropped to 60.58 euro cents from 61 cents.

(BusinessDesk)