Aussie inflation data bites into kiwi

LAURA WALTERS
Last updated 15:30 22/01/2014

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The New Zealand dollar has dropped against the aussie after Australian inflation grew more than expected.

The kiwi traded at A93.84c, from A94.41c at noon today before Australian consumer price index figures were released.

Australian consumer prices jumped 0.8 per cent in the last quarter compared with the previous quarter.

OM Financial senior foreign exchange and derivatives adviser Stuart Ive said the currency was a little surprised by the inflation growth.

The market was expecting a 0.6 per cent quarter-on-quarter growth, he said.

The drop in the dollar presented a good opportunity for New Zealand exporters to get some cover, he said.

The stronger than expected inflation growth meant it would be harder for the Reserve Bank of Australia to cut interest rates from 2.5 per cent, Ive said.

The Australian central bank had been "dovish" with its monetary policy statement, signalling the possibility of interest rate cuts, he said.

Ive said that in the short term, support for the kiwi was sitting at A93.70c. If it broke below that level, it would be heading towards A93.30c.

However, the New Zealand economy was still in a stronger position than Australia's, so the kiwi was unlikely to continue to gain against the aussie in the medium term.

Ive said the target for the New Zealand dollar was still A95.83c - a high last reached in 2005.

The main drivers for the December quarter were a rise in the price of fruit and vegetables by 8.1 per cent and domestic holiday travel and accommodation rising by 6.9 per cent.

Higher housing costs, international holiday prices and tobacco costs also boosted inflation.

In contrast, fuel prices eased by 1.1 per cent.

The 0.8 per cent lift for the final quarter of 2013, which came after a 1.2 per cent rise in the third quarter, took the annual inflation rate to 2.7 per cent, placing it closer to top end of the Reserve Bank of Australia's target range of 2 to 3 per cent.

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- Fairfax Media

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