New Zealand’s dollar fell for the first time in two weeks after a government report showed consumer prices rose at a slower pace than economists forecast, easing pressure on the central bank to raise interest rates.
The kiwi weakened against all 16 of its major counterparts as swaps traders cut their predictions for the size of rates increases by central bank Governor Alan Bollard over the next 12 months. Australia’s dollar weakened for a second day as signs of slowing growth in China, the South Pacific nation’s largest trading partner, damped demand.
The inflation data “buys the Reserve Bank a bit more time and that’s why we’re seeing this reaction in the kiwi,” said Khoon Goh, a senior markets economist at ANZ National Bank Ltd. in Wellington. “The market should start to focus on the fact that some of the domestic momentum in the New Zealand economy seems to be easing.”
New Zealand’s dollar fell 2.6 percent to 71.012 U.S. cents at 11:54 a.m. in New York from 72.97 cents yesterday, its first decline since July 2. The currency dropped 3.6 percent to 61.47 yen. The so-called Aussie slid 1.5 percent to 87.09 U.S. cents, and lost 2.6 percent to 75.29 yen.
The kiwi pared its second weekly gain after Statistics New Zealand said consumer prices rose 0.3 percent last quarter from the previous three months, less than the 0.4 percent gain forecast by economists.
Reserve Bank of New Zealand Governor Bollard raised the official cash rate to 2.75 percent on June 10, the first increase since 2007. Traders are betting he will boost the benchmark by 1.22 percentage points over the next 12 months, after wagering on a 1.30 percentage point advance at the start of the week, according to a Credit Suisse Group AG index.
The New Zealand and Australian dollars also weakened as Asian stocks dropped, damping demand for higher-yielding assets. The MSCI Asia Pacific Index of shares fell 0.6 percent, a second day of losses.
“We have seen a fairly indifferent performance on Asian equity markets which has taken some buying momentum away from the Australian dollar,” Tim Waterer, a foreign-exchange dealer at CMC Markets in Sydney, wrote in a note. “Market sentiment remains fickle which does lend itself to higher volatility trading for the Aussie in the near-term.”
A gauge of consumer sentiment dropped to 66.5 in July from 76 in the previous month, according to the Thomson Reuters/University of Michigan preliminary index. The median forecast of 62 economists in a Bloomberg News survey was for a drop to 74. China’s economic growth slowed to 10.3 percent last quarter, from 11.9 percent in the prior three months, the statistics bureau said yesterday.
The New Zealand dollar still had a weekly gain against the U.S. currency, adding 0.04 percent.