Kiwi recovers ground with inflation fears

The New Zealand dollar gained from an 11- month low as rising inflation expectations halted the downward pressure that has also affected other currencies sensitive to falling commodity prices.

The kiwi rose to US68.62c at 5pm yesterday from an 11- month low of US68.36c, though it was still down from US68.82c on Thursday. The trade- weighted index fell to 74.78 from 74.95.

Respondents to the Reserve Bank’s survey of expectations see the pace of inflation at 2.17 per cent two years from now, up from 1.92 per cent in the March quarter. The central bank watches the survey closely to see how firms are responding to economic data. Governor Graeme Wheeler is set to review monetary policy next week and is expected to keep the official cash rate at 1.75 per cent.

“The RBNZ does look closely at that figure on the basis that inflation expectations beget inflation outcomes,” said Graham Parlane, private client manager at OMF. “The fact it’s over that midpoint garnered some attention so we saw the kiwi jump up.”

The kiwi has found itself under pressure for much of this week as weaker iron ore and oil prices weighed on commodity- sensitive currencies, even as prices of raw materials produced locally rose. The dollar rose to A92.99c from A92.75c on Thursday.

The kiwi fell to 62.47c from 63.11c ahead of the run- off vote in the French presidential election, where centrist Emmanuel Macron is expected to beat far- right National Front candidate Marine Le Pen.

It dropped to 53.12 British pence from 53.39p on Thursday, and to 4.7317 Chinese yuan from 4.7403. It dropped to ¥ 77 from ¥ 77.60 on Thursday.

The two- year swap rate was unchanged at 2.3 per cent, as were 10- year swaps at 3.39.