Kiwi Holds Gain as Inflation Fans Rate Bets; Aussie Stays Higher

New Zealand’s dollar remained higher following a gain yesterday after the nation reported accelerating inflation, bolstering the case for its central bank to raise interest rates.

Traders saw a 63 percent chance that the Reserve Bank of New Zealand will increase the official cash rate by a quarter percentage point to 2.75 percent at a policy meeting on Jan. 30, according to data on overnight-index swaps compiled by Bloomberg. Australia’s dollar gained against most of its major peers as stocks rose and money-market rates dropped in China.

“The view is that the RBNZ was looking for an excuse to maybe start the tightening cycle as early as next week, then maybe this headline increase would give them the excuse to do that,” Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney, said of market bets on a rate increase. “That’s the reason that the New Zealand dollar has jumped up on the numbers.”

The kiwi was little changed at 83.26 U.S. cents as of 5:13 p.m. in Sydney after climbing 0.9 percent yesterday. New Zealand’s two-year interest-rate swap rate rose one basis point to 3.83 percent. It reached 3.89 percent on Jan. 6, the highest since January 2011.

Australia’s dollar added 0.1 percent to 88.18 U.S. cents after touching 87.57 U.S. cents yesterday, the lowest level since July 2010.

Consumer prices in New Zealand rose 1.6 percent in the fourth quarter from a year earlier, the fastest annual pace since early 2012, the statistics bureau said today, compared with the 1.5 percent estimated by economists in a Bloomberg News survey.

Chinese Markets

In China, the Shanghai Stock Exchange Composite Index climbed 0.8 percent, while the benchmark seven-day repurchase rate dropped 0.88 percentage point as the central bank pumped funds into the financial system.

The repo rate soared more than 1 percentage point yesterday amid concern an investment product that comes due Jan. 31 will default. The People’s bank of China auctioned reverse-repurchase agreements today, according to a trader at a primary dealer required to bid at the auctions.

The move followed data yesterday showing the world’s second-largest economy grew 7.7 percent in the fourth quarter, exceeding the median estimate of 7.6 percent in a Bloomberg survey. The nation is the biggest export market for Australia and New Zealand.

Aussie Prospects

Australia’s benchmark three-year government note ended a three-day advance, with the yield rising four basis points to 2.87 percent. It fell to as low as 2.81 percent yesterday, a level unseen since Sept. 30.

Overnight-index swaps showed a 43 percent probability that the Reserve Bank of Australia will lower its cash-rate target from an all-time low of 2.5 percent by June.

“You have global recovery gaining traction in 2014,” Nader Naeimi, the Sydney-based head of dynamic asset allocation at AMP Capital Investors, which manages $131 billion, said in an interview with Bloomberg Television. “The combination of extremely pessimistic investor sentiment and some fundamental support from strong growth prospects in 2014 are the main reasons that I’m keen to buy the Aussie dollar at these levels.”

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net

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