NZ dollar falls on CPI data, Chinese move

The New Zealand dollar plunged more than a US cent today after the Consumer Price Index (CPI) for the December quarter was lower than expected and after China was reported to be constraining bank lending.

The NZ dollar fell from around US74c to US73.50c after the CPI was reported to have fallen 0.2 per cent in the December quarter to put the annual rate at 2 per cent.

"The market was positioned for a flat result, or maybe even a positive number, and it came out negative 0.2 per cent," said Mike Jones, currency strategist at BNZ Capital.

The rate was seen as being in line with the Reserve Bank of New Zealand's view that interest rates can stay on hold to the middle of the year. Some commentators were looking for a rise in interest rates before then.

The downward momentum in the NZ dollar was reinforced by reports that Chinese banking authorities have instructed some major banks to halt their lending during the rest of January after a burst of credit in the first couple of weeks, official media and banking sources said.

The official China Securities Journal on Wednesday cited unnamed banking sources as saying that some banks had been told to stop all lending, including short-term bills, for the rest of the month, Reuters reported.

An effective tightening in policy in China to rein in the economy is negative for commodities and commodity sensitive currencies.

The NZ dollar was US72.95c at 5pm from US73.91c at 8am, and US83.84c at 5pm yesterday.

Mr Jones said speculators had jumped on board the downward trend in the NZ dollar and several support levels had been broken. Support was now seen around US72.80c.

The euro also fell to its lowest level in four months against sterling in Asian trading on ongoing worries about Greece's finances.

The NZ dollar surged to a 22-month high around 0.5178 euro overnight but was back at 0.5133 by 5pm from 0.5128 at 5pm yesterday.

The NZ dollar fell to 66.56 yen from 66.83 yen at 5pm yesterday and to A79.47c from A79.85c. The trade weighted index fell to 66.34 from 66.95 at 8am and from 66.68 at 5pm yesterday.

- NZPA