NZ dollar hits 2-week high on inflation; Aussie treads water

[SYDNEY] The New Zealand dollar briefly rose to a two-week high on Tuesday after inflation surpassed the central bank's forecasts in the third quarter, while its Australian cousin hovered around a recent three-week high.

The New Zealand dollar climbed 0.4 per cent to US$0.7217 after official data showed the consumer price index (CPI) picked up 0.5 per cent in the three months to the end of September, after a flat reading the previous quarter.

The annual pace of growth was 1.9 per cent, beating analysts'expectations for a 1.8 per cent rise.

The kiwi was, however, unable to sustain those gains and was last down 0.1 per cent at US$0.7163 as the uptick in consumer prices was driven largely by housing and food costs while signs of inflation were evasive elsewhere.

That means the data is unlikely to waver the Reserve Bank of New Zealand's (RBNZ) determination to keep interest rates at record lows for some time yet, economists said.

Added to that was intense uncertainty about the country's next government after an inconclusive election last month left New Zealand in a political limbo.

Analysts cautioned the kiwi would struggle to make ground beyond US$0.7200.

"Gains to the topside are going to be pretty tough until we find out what's happening on the political front," said Philip Borkin, economist at ANZ Bank.

New Zealand acting Prime Minister Bill English on Monday said it could take until the end of the week to confirm the next government.

Across the Tasman Sea, the Australian dollar was steady at US$0.7848, not far from a three-week high of US$0.7897 touched on Friday.

The Aussie was supported by upbeat views on the economy by the country's central bank, implying further cuts in interest rates were not warranted. At the same time, the Reserve Bank of Australia (RBA) was also nowhere close to considering a rate hike.

The RBA also softened its objections to a higher Aussie by adding the caveat "material" to its usual warning on the currency.

"A material further appreciation of the exchange rate would be expected to result in a slower pick-up in economic activity and inflation," the minutes showed.

The Aussie had rallied since the middle of the year to a near 2-1/2-year peak of US$0.8124 but has since fallen 2.6 per cent.

New Zealand government bonds eased, sending yields 2.5 basis points higher along the curve.

Australian government bond futures slipped, with the three-year bond contract off 1 tick at 97.880 while the 10-year contract fell 1.5 ticks to 97.21.

REUTERS