21 Jan 2014

Inflation figures push dollar up

7:18 pm on 21 January 2014

The New Zealand dollar has jumped more than half a cent against both the United States and Australian dollars after higher-than-expected inflation figures.

Bancorp Treasury Services senior client advisor Peter Cavanaugh said figures showed the Consumer Price Index (CPI) rose 0.1 percent in the December quarter compared with the third quarter of last year, and that increased the likelihood of a rate hike.

"The CPI surprised everybody. On the upside, the numbers were positive. Everyone was expecting a small negative, so that has bought forward people's expectations for the Reserve Bank to raise the OCR (Official Cash Rate)," Mr Cavanaugh said.

"The market is now saying that an OCR rise next week is at least a 50-50 bet and that, of course, lifted the short-term interest rates and gave the New Zealand dollar a boost."

If the OCR did not rise next week it was certain to in March, he said.

Just after 5pm, the New Zealand dollar was buying: 83.22 US cents, 94.37 Australian cents, 50.65 pence, 0.6142 euro and 87.08 yen.

Shares up

The New Zealand share market rose, the NZX Top 50 Index gaining 31 points to 4922.

Harbour Asset Management director Craig Stent said a surprise injection of funds by the People's Bank of China aimed at curbing a recent spike in Chinese interest rates helped boost stocks across the Asia-Pacific.

"The key story today is China central bank adding around about $42 billion to the financial system and expanded lending facility as we've come into the new year," Mr Stent said.

The most significant change for the market was Chorus, which dropped 7 cents to $1.46 after Moody's downgraded its credit rating.

Moody's said its downgrade was largely prompted by the Commerce Commission's decision forcing Chorus to halve its wholesale price for using its copper wires to deliver broadband.

But the ratings agency said higher-than-expected capital spending and operating costs were also to blame.