The New Zealand dollar gained as traders dial back their expectations for a rate cut after inflation was higher than forecast.
The kiwi rose to 69.68 US cents as at 5pm in Wellington from 65.45 cents immediately before the inflation data was released and 65.01 cents yesterday. The trade-weighted index increased to 71.75 from 71.12 yesterday.
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Annual inflation was 1.9 per cent in the September quarter, beating economists expectations and ahead of the Reserve Bank's 1.4 per cent forecast.
Governor Adrian Orr has repeatedly kept the door open for the official cash rate to be cut from its record low 1.75 per cent, but investors are finding that harder to believe with the consumers price index almost at the midpoint of the central bank's 1-to-3 per cent target band.
Sheldon Slabbert, a sales trader at CMC Markets, said while the Reserve Bank can look through a petrol price spike, higher transport costs typically feed through into wholesale and retail prices. That means future inflation readings might also beat expectations and undermines the Reserve Bank's option to lower the OCR.
"For them to cut rates is questionable and if they did do that, I think it would really hurt the kiwi," he said.
Slabbert expects the kiwi will get a short-term boost from the inflation reading, rising back to 66-67 US cents, but will head back towards 62 cents by December or early next year due to the Federal Reserve's track for higher interest rates.
"The interest rate differential is a big hurdle to overcome," he said.
New Zealand's two-year swap rate increased 2 basis points to 2.03 per cent;10-year swaps rose 3 basis points to 2.91 per cent.
The kiwi increased to 92.13 Australian cents from 91.49 cents yesterday and rose to 4.5472 Chinese yuan from 4.4961 yuan. It advanced to 49.97 British pence from 49.60 pence yesterday and rose to 56.73 euro cents from 56.29 cents. The local currency was up to 73.54 yen from 72.85 yen yesterday.