NZ dollar holds gains after softer US inflation which Yellen says won't persist

The kiwi traded at 71.66 US cents as at 8am in Wellington.

The New Zealand dollar held onto its gains after rising on Friday in New York following weaker-than-expected US inflation, which Federal Reserve chair Janet Yellen says she doesn't expect to persist. An announcement on NZ's next government could come as soon as today.

The kiwi traded at 71.66 US cents as at 8am in Wellington, little changed from 71.65 cents in late New York trading on Friday and up from 71.40 cents in Wellington at the end of last week. The trade-weighted index rose to 75.27 from 75.04 last week.

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US core CPI inflation rose just 0.1 per cent in September, half the pace expected, for an annual rate of 1.7 per cent, missing the forecast 1.8 per cent rate. Other figures showed US retail sales rose 1.6 per cent last month, also missing expectations, although it beat forecasts for the measure that excludes vehicles and fuel at 0.5 per cent. In New Zealand today traders will be watching for the performance of services (PSI) survey for September and in Asia, Chinese data for consumer and producer prices.

"We open this morning with the USD on the back foot after Friday's US inflation data fell short of economists' projections cutting the odds of a December rate hike," traders at HiFX said in a note. "The key domestic drivers for the NZD during the week ahead will be the announcement of the makeup of our new government, possibly as early as tonight and tomorrow morning's quarterly inflation report."

Yellen told the Group of Thirty's Annual International Banking Seminar in Washington on Sunday that inflation had been "surprisingly low" but her "best guess" was that a strengthening labour market would mean inflation would move higher next year.

Third-quarter consumer prices data is due for release tomorrow in New Zealand. Economists expect inflation was 0.4 per cent in the three months ended September 30, for an annual rate of 1.8 per cent, according to the median in a poll of 13 economists surveyed by Bloomberg. That compares to the central bank's projection of inflation of 0.2 per cent in the third quarter for an annual rise of 1.6 per cent.

National Party leader Bill English says his party exchanged letters with New Zealand First over the weekend and the focus of talks has been on policy rather than ministerial positions, he told the AM Show. NZ First leader Winston Peters has said he expects there will be a new government before the end of the week after his party missed its own deadlines to make a decision.

The kiwi traded at 90.85 Australian cents from 90.93 cents on Friday in New York. It traded at 4.7142 yuan from 4.7135 yuan and at 80.07 yen from 80.13 yen. The kiwi traded at 53.85 British pence from 53.81 pence in New York and at 60.63 euro cents from 60.58 cents.