Kiwi drops against Aussie dollar

The New Zealand dollar dropped against the Australian dollar after unexpectedly strong inflation data across the Tasman prompted traders to wind back bets that nation's central bank could cut interest rates.

The kiwi traded at 93.23 Australian cents as at 5pm in Wellington, from more than 94 cents immediately before the Australian consumer price figures were released and from 93.51 cents late yesterday.

The New Zealand dollar was recently at 74.51 US cents, little changed from 74.45 cents yesterday.Australia's trimmed mean gauge of core consumer prices rose 0.7 percent in the fourth quarter from three months earlier, against market expectations of a 0.5 percent gain.

The Reserve Bank of Australia next reviews interest rates next Tuesday and traders had bet it was prepared to cut the cash rate by some 37 basis points, based on the overnight index swap curve.

That was wound back to 10 points this afternoon."Investors had been betting inflation data would surprise on the downside and be the catalyst for the RBA to change its tone or even cut rates," said Raiko Shareef, currency strategist at Bank of New Zealand.

"That has been wound back very sharply."The kiwi dollar remained "weighed down" ahead of the Reserve Bank of New Zealand's statement at 8am in Wellington tomorrow, where there is an expectation governor Graeme Wheeler will water down his tightening bias, Shareef said.

The kiwi may trade in a range of 73.70 US cents to 75.20 cents in the next 24 hours and there is a chance for it to break back below 74 US cents, potentially to a new three-year low if Wheeler drops his tightening bias altogether.

Adding to the mix, the results of the US Federal Open Market Committee's latest policy meeting will be made public at 8am Thursday.

A 'steady-as-she-goes' view is expected from the FOMC, suggesting interest rates in the world's biggest economy could be raised in mid-2015.

The trade-weighted index was little changed at 76.79 from 76.75 yesterday. The kiwi was little changed at 49.13 British pence from 49.14 pence yesterday.

The local currency slipped to 65.70 euro cents from 66.02 cents yesterday and rose to 88.02 yen from 87.70 yen.