NZ dollar gains after Australian inflation as OCR looms

File photo / NZ Herald
File photo / NZ Herald

The New Zealand dollar gained against the greenback ahead of tomorrow's official cash rate review, where the Reserve Bank is expected to keep rates on hold, and after Australian inflation was more benign than expected.

The New Zealand dollar rose to 81.14 US cents in local trading and was little changed on 80.03 cents from just before 8.30 am this morning. The kiwi fell to 77.02 Australian cents from 77.35 cents.

Reserve Bank Governor Alan Bollard is expected to leave New Zealand's historical low 2.5 per cent official cash rate unchanged at its review tomorrow. Inflation figures released last week highlighted there is very little urgency to increase the rate before the end of 2012, as downside risk from the ongoing European debt crisis to stabilise the crisis remain slow.

"There is little chance of the Reserve Bank moving the currency round - if anything they will be more worries about Europe but that seems to have stabilised," said Joseph Capurso, currency strategists at Commonwealth Bank of Australia in Sydney.

Australia's consumers price index was unchanged in the fourth quarter of last year and up an annual 3.1 per cent, the Australian Bureau of Statistics said, raising expectations of an interest rate cut. Economists expected the CPI would rise 0.2 per cent from the previous quarter and an annual 3.3 per cent.

"The Australian CPI moved things around a bit and the kiwi got caught up in that initial sell, but it grabbed it all back in the afternoon," Capurso said.

Markets across the Tasman will close tomorrow for Australia day, while Chinese markets remain closed.

In the US, Federal Reserve policymakers will meet on Wednesday in the US for the first time this year, and the Federal Open Market Committee will release its monetary policy statement. The Fed is expected to continue pursuing a near-zero interest policy, and will include Federal funds rate forecasts for the first time.

In his State of the Union address, US President Barack Obama called on the House of Representatives to require the nation's highest income earners to pay at least 30 per cent of their income in taxes, as he tries to level what he sees as economic unfairness imbalance. The President also announced he will create a mortgage crisis unit, including Federal and State officials, to investigate wrongdoing related to real estate lending.

The New Zealand dollar rose to 62.22 euro cents from 62.18 cents yesterday and was little changed 63.07 yen from 63.01 yen. It was little changed on 51.90 British Pence from 51.93 pence yesterday.

The trade-weighted index crept lower to 71.85 from 71.90.

- BusinessDesk

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