The New Zealand dollar rose against its Australian counterpart after Australia posted its weakest inflation in seven years, sparking speculation of an interest hike across the Tasman just as the market is preparing for the local Reserve Bank's rate decision.
The kiwi rose to 90.12 Australian cents as at 5pm in Wellington from 88.90 cents before the inflation figures were released and from 89.16 cents late yesterday. The local currency rose to 68.81 US cents from 68.57 cents yesterday.
Australia's consumer price index fell 0.2 per cent in the first quarter, the biggest quarterly decline since December 2008, for an annual gain of 1.3 per cent, undershooting market forecasts and raising the possibility that the Reserve Bank of Australia will cut its cash rate from 2 per cent next week.
That's an extra wrinkle for bets on the Reserve Bank of New Zealand, which is expected to wait until June to cut instead of moving tomorrow when its review is due three hours after the Federal Reserve's latest statement.
"That would add fuel to the fire for the RBNZ tomorrow," said Mark Johnson, senior dealer at OMF. "What the Reserve Bank has got to figure out is what's the point of waiting. The risk to inflation expectations if they procrastinate would do more harm than good.
