The New Zealand dollar fell over half a US cent with inflation figures expected to confirm there is little pressure on the Reserve Bank to raise interest rates this year.

The New Zealand dollar fell to 81.45 US cents at 8am from 82.16 cents yesterday at 5pm. The trade weighted index decreased to 72.72 from 73.27 yesterday.

An increase in the government excise on tobacco probably drove up the consumer price index in the first quarter, masking a benign inflation outlook that gives the Reserve Bank little reason to raise interest rates this year. The market is pricing in a 0.6 percent increase in the quarterly pace of inflation.

"If the figure is on expectations then you are likely to see the kiwi come under further downside pressure," said Alex Sinton, senior dealer at ANZ New Zealand. "It leaves the New Zealand dollar vulnerable to a flat number."


In March, Reserve Bank Governor Alan Bollard held the official cash rate at 2.5 percent saying the strength of the kiwi dollar would keep interest rates lower for longer. Traders are betting central bank will hike the rate by just 4 basis points over the next 12 months, according to the Overnight Index Swap curve.

The New Zealand dollar fell to 62.12 euro cents from 62.69 cents after the International Monetary Fund's financial stability report warned European banks could be forced to sell as much as $3.8 trillion in assets next year and reduce lending if governments fail to contain the region's debt crisis.

Spain will sell two- and 10-year bonds on Thursday, while Germany is also preparing to sell debt this week. Investors breathed a collective sigh of relief when Spain grew solid demand for 12-month and 18-month bills at its debt auction on Tuesday.

In New Zealand, ANZ Job Advertisements are released this afternoon.

The New Zealand dollar fell to 78.73 Australian cents at 8am from 79.02 cents yesterday. It declined to 50.87 British pence from 51.58 pence and dropped to 66.20 yen from 66.86 yen.