The New Zealand dollar remained well underpinned today after stronger than expected June trade data and much higher than forecast Australian inflation for the June quarter.
The kiwi ended virtually unchanged from yesterday at US62.40c having had a brief glimpse of US62.75c in overnight trade.
However, it dipped against the Australian dollar, ending at A82.48c from A82.71c. The Australian dollar firmed on a heavy bet that the country's Reserve Bank will almostly certainly raise interest rates at its next opportunity.
Australian consumer prices rose 1.6 per cent in the June quarter - their fastest pace in almost six years. That put Australia's inflation rate on par with New Zealand's at 4.0 per cent and well above the 3.4 per cent median forecast.
Bonds and equities dived as investors priced in a rate rise to 6.0 per cent at the Reserve Bank of Australia's policy meeting on August 1.
"Inflation blew past everybody's expectations and makes it very hard for the RBA not to hike next week," said Rory Robertson, interest rate strategist at Macquarie Bank.
"If there was any doubt before about the Reserve Bank hiking next week, it's gone," declared Stephen Koukoulas, chief strategist at TD Securities.
"Now we are going to get people talking about a further rate rise beyond that one as well."
The Australian dollar lifted to US75.60c from its US75.52c local close yesterday.
Locally, the lower-than-expected June trade deficit was seen as pointing to slowing imports and a recovering export sector.
Seasonably adjusted exports rose 9.4 per cent or $760 million in the June quarter, compared with the previous three months, boosted by a record dairy production season.
However, the local market is focused on tomorrow's Reserve Bank review of interest rates. No one is predicting the bank will alter the 7.25 per cent Official Cash Rate but economists are expecting to hear Governor Alan Bollard tell people not to expect a rate cut until the second half of next year.
The trade-weighted index closed on 62.86 from 62.85 yesterday.
The US dollar steadied after rallying on US consumer confidence and home sales data that slightly boosted expectations the Federal Reserve will bump up interest rates again next month.
"The market is favouring another hike from the Fed," said the chief trader at a European investment bank in Tokyo.
Federal fund futures showed the market was pricing in a nearly 60 per cent chance the Fed will push overnight rates up another quarter percentage point to 5.5 per cent at its next policy meeting on August 8.
The dollar inched down to 117.10 yen after rising half a per cent in the previous session.
The following are Reuters currency rates:
5pm today 5pm Tuesday
NZ dlr/US dlr US62.40c US62.45c
NZ dlr/Aust dlr A82.48c A82.71c
NZ dlr/euro 0.4960 0.4944
NZ dlr/yen 73.06 72.95
NZ dlr/stg 33.89p 33.81p
NZ TWI 62.86 62.85
Australian dollar US75.60c US75.52c
Euro/US dollar US1.2580 US1.2635
US dollar/yen 117.07 116.70
- NZPA
<i>Currency:</i> Dollar remains underpinned after trade data
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