NZ dollar pares losses against Aussie after tepid inflation across Tasman

The kiwi traded at 51.65 British pence from 51.73 pence. Photo: John Sefton

The New Zealand dollar recovered its overnight losses against the Australian dollar and moved slightly higher against the greenback after Australian inflation data failed to fire.

The kiwi traded at 91.80 Australian cents as at 5pm in Wellington versus 91.63 cents at 8am and 91.82 cents yesterday. It was at 67.90 US cents from 67.73 cents yesterday.

Australian consumer prices rose 0.4 percent in the second quarter and were up 2.1 percent from a year earlier, the Australian Bureau of Statistics said. Economists had expected consumer prices to rise by 0.5 percent on quarter and 2.2 percent on the year, according to the median in a Bloomberg poll of 26 economists. The Reserve Bank of Australia aims to keep inflation between 2 percent and 3 percent.

Martin Rudings, senior dealer foreign exchange at OMF, said the kiwi benefited from "the no smoking gun CPI in Australia." He noted markets had expected it might even beat forecasts and said the kiwi could test 92.10 Australian cents.

"The rise in headline inflation to back within the RBA’s 2-3 percent target range for only the first time in 15 months was only possible because of a leap in petrol prices. There is hardly any price pressure elsewhere and, with underlying inflation having fallen back below 2 percent, there is little need for the RBA to raise interest rates soon. Rates may not rise until late in 2019, if not sometime in 2020," said Paul Dales, chief Australia and New Zealand economist for Capital Economics.

Looking ahead, Rudings said investors are waiting for any headlines from US President Donald Trump's meeting with European Commission President Jean-Claude Juncker as well as the European Central Bank's rate decision, both of which could weigh on the euro. The kiwi traded at 58.13 euro cents from 57.97 cents yesterday

The main event, however, will be second quarter US gross domestic product data on Friday, with Trump saying it could be as high as 5 percent.

"There is definitely a head of steam in the States and the momentum is going to be pretty hard to stop," said Rudings.

The kiwi traded at 51.65 British pence from 51.73 pence. It rose to 75.53 yen from 75.38 yen yesterday and traded at 4.6148 Chinese yuan from 4.6128 yuan.

New Zealand's two-year swap rate fell 1 basis point to 2.12 percent and 10-year swaps fell 1 basis points to 3.04 percent.