NZ dollar jumps vs. pound after Bank of England low inflation warning

File photo / NZ Herald

The New Zealand dollar jumped to a four-week high against the British pound after the Bank of England cut its growth and inflation forecasts and signalled interest rates aren't likely to rise anytime soon.

The kiwi touched 49.96 British pence, and was trading at 49.84 pence at 8am in Wellington, from 49.14 pence at 5pm yesterday. The local currency gained to 78.68 US cents from 78.19 cents yesterday.

Sterling fell after the BoE noted in its quarterly inflation report that inflation could fall below 1 per cent over the next six months and it doesn't expect inflation to return to its 2 per cent target until the end of its three-year forecast horizon, at the end of 2017. It lowered its forecast for growth to 2.9 per cent in 2015 and 2.6 per cent in 2016, down from 3.1 per cent and 2.8 per cent in August. Governor Mark Carney told reporters that markets were right to rule out rate rises anytime soon.

"The UK economy took centre stage overnight," ANZ Bank New Zealand chief economist Cameron Bagrie and senior economist, Europe, Amber Rabinov, said in a note. "The Bank of England's quarterly inflation report reflected an unambiguously more dovish outlook for the UK economy. This saw interest rate markets push out BoE interest rate hike expectations and there was a notable sell-off in the pound."

Reports scheduled for release in New Zealand today include the BNZ-BusinessNZ Performance of Manufacturing Index, the Real Estate Institute's monthly house prices report, food price data and ANZ-Roy Morgan Consumer Confidence.

Later in the day, the focus will be on the release of Chinese data including retail sales, industrial production and fixed asset investment. China is the largest trading partner for New Zealand and Australia.

The New Zealand dollar advanced to 90.27 Australian cents from 90.03 cents ahead of a speech by Reserve Bank of Australia assistant governor (economic) Christopher Kent at an Australian Business Economists event in Sydney, which is open to the media.

The local currency advanced to 63.29 euro cents from 62.72 cents yesterday ahead of the release of key European inflation data tonight.

The kiwi touched a fresh seven-year high of 91.15 yen amid speculation Japan may call an early election to secure a mandate for continuing its planned economic reforms, including a further increase in the sales tax. The local currency was trading at 91.01 yen at 8am from 90.50 yen yesterday.

Japan's chief cabinet secretary Yoshihide Suga told reporters in Tokyo he isn't preparing for an early election, and there was no change to the government's stance to make a decision by the end of this year on raising the country's sales tax, Bloomberg News reported. Meanwhile, Finance Minister Taro Aso said later that no decisions had been made on postponing an increase in the sales tax, while central bank governor Haruhiko Kuroda told lawmakers that securing confidence in the nation's fiscal management is vital, Bloomberg said.

The trade-weighted index advanced to 77.99 from 77.49 yesterday.