WELLINGTON/SYDNEY, Jan 21: The New Zealand dollar got stung on Wednesday after a surprisingly low reading on inflation further lessened the chance of a hike in interest rates and even spurred speculation the next move might be a cut.
The New Zealand dollar fell to $0.7633, having tumbled a cent and a half from Tuesday’s peak as inflation slowed to 0.8 percent in the fourth quarter.
That was below the Reserve Bank of New Zealand’s 1-3 percent target zone and challenged the central bank’s view that further tightening might be needed at some stage. ‘The market is looking to price out the prospect of rate hikes in the foreseeable future and in fact is looking to price in the prospect of rate cuts,’ said BNZ currency strategist Raiko Shareef.
Swap markets swung to pricing 2 basis points of easing on a 12-month horizon, from 4 basis of hikes on Tuesday. Support for the kiwi was found at $0.7610, the 2-1/2-year low touched in mid-December, with offers at $0.7680.
New Zealand government bonds were firmer, pushing yields 3 basis points lower along the curve. A dairy auction which saw a 1 percent rise in prices, offered no comfort as dairy giant Fonterra was seen as having to cut its forecast payout again. The Aussie leapt to a five-week high at NZ$1.0713 , giving the Australian currency some support against its U.S. counterpart.
The Australian dollar edged lower to $0.8167, from this week’s peak of $0.8244, as investors were reluctant to take big positions ahead of two major central bank policy meetings.
The Bank of Japan ends a two-day meeting on Wednesday with growing speculation it could announce more stimulatory measures, given that falling oil prices are pulling inflation lower there.
The other major event of the week is on the details of an expected large-scale European Central Bank (ECB) stimulus package and whether it will be seen by markets as credible and sufficient. The ECB policy meeting is on Jan. 22. Australian government bond futures were firmer, with the three-year bond contract up 2 ticks at 97.900. The 10-year contract added 4 ticks to 97.4150.
(AGENCIES)
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