Aussie Rises, Kiwi Slumps Amidst Inflation Data
The Australian dollar rose to a more than five-month high on Wednesday after inflation data came in hotter than expected, while the kiwi fell after New Zealand's fourth-quarter inflation grew less than predicted, according to the central bank.
The euro stayed at a nine-month high versus the dollar, as traders assessed a brighter eurozone economic forecast against rising concerns of a U.S. recession. The Australian dollar gained 0.66% to $0.7092, its highest level since August, after a surprise rise in inflation to a 33-year high last quarter strengthened the argument for the Reserve Bank of Australia to keep hiking interest rates.
Meanwhile, the New Zealand dollar fell roughly 0.6% to $0.6469 as annual inflation of 7.2% in the fourth quarter fell short of the central bank's 7.5% projection. "The key message we're taking from it is that we believe we've seen the worst of inflation now and that inflation has peaked," said Jarrod Kerr, Kiwibank's chief economist.
"We expect the cash rate in New Zealand will peak at 5%, not 5.5%, as the Reserve Bank (of New Zealand) has told us, and rates markets are reacting to that shift in outlook." In other currencies, the euro held steady at $1.0888, close to Monday's nine-month high of $1.0927, underpinned by a surprisingly strong eurozone economy and hawkish rhetoric from European Central Bank (ECB) officials.
Data released on Tuesday revealed that eurozone economic activity returned to moderate growth in January, indicating that the bloc's slowdown may not be as severe as previously thought. Expectations of further ECB rate hikes also boosted mood. Policymakers are committed to containing inflation, but they disagree on the magnitude of any movements after February's projected half-point increase.
In the United States, a bleaker picture is emerging as symptoms of an economic downturn emerge as a result of the Federal Reserve's dramatic rate rises last year. Business activity in the United States fell for the seventh consecutive month in January, while the decline slowed in both the manufacturing and services sectors for the first time since September.
The US dollar index rose 0.01% against a basket of currencies to 101.92, not far from last week's almost eight-month low of 101.51. "(The data) reinforces that, for one thing, Europe's resilience... and the issues they've had in terms of energy, have not been as devastating as some had thought," said Rodrigo Catril, a currency strategist at National Australia Bank.
The British pound was 0.15% to $1.2322, while the Japanese yen was last worth 130.24 per dollar.