NZ dollar falls vs. trans-Tasman counterpart as Aust inflation beats estimates

The New Zealand dollar fell against its trans-Tasman counterpart after faster-than-expected inflation eroded the chances of another rate by the Reserve Bank of Australia, and fuelled demand for the Australian dollar.

The kiwi dropped to 87.16 Australian cents at 5pm in Wellington from 87.64 cents immediately before the inflation report, and 87.48 cents yesterday. The kiwi slipped to 84.58 US cents at 5pm from 85.13 cents at 8am and was up from 84.42 cents yesterday.

Australian consumer prices rose 1.2 percent in the three months ended Sept. 30, according to the Bureau of Statistics, ahead of 0.8 percent predicted in a Bloomberg survey of economists. That's dimmed expectations the RBA will cut its key rate, which is at a record-low 2.5 percent, and traders are pricing in a tiny 8 basis points of increases over the next 12 months, according to the Overnight Index Swap curve.

Investors are eyeing New Zealand's Reserve Bank review of monetary policy next week for any sign governor Graeme Wheeler is uncomfortable with the strength of the kiwi dollar. Wheeler has already signalled interest rates will rise next year, though he's consistently said the currency is over-valued.

The weakness in the kiwi against the Australian dollar "might have further to go," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "This could ramble on for a few more weeks, especially if Wheeler says 'we're going to hike, but we want the kiwi to go lower first'."

Speizer said Westpac's economists expect Wheeler will hike the official cash rate in April, having previously predicted a March increase. Traders are pricing in 79 basis points of increases over the coming 12 months, according to the Overnight Index Swap curve.

Investors will continue to monitor US economic data as it comes out after delays caused by the partial government shutdown. The political gridlock is expected to have slowed growth in the latest quarter, which will prompt the Federal Reserve to delay the planned slowing of its money printing programme, and September jobs growth missed forecasts when it was released yesterday in Washington.

The trade-weighted index slipped to 77.59 from 77.85 yesterday. The local currency fell to 82.52 yen from 83.02 yen yesterday and declined to 52.06 British pence from 52.36 pence. It dropped to 61.35 euro cents from 61.77 cents yesterday.

(BusinessDesk)