NZ dollar rises on inflation data, Aussie flat in lean trade

[WELLINGTON] The New Zealand dollar surged on Thursday as much-awaited data showed inflation was back in the central bank's target range for the first time in two years, while the neighbouring Aussie tread water on the country's national holiday.

The Kiwi hit a ten-week high of US$0.7314, up from around US$0.7260 before the country's statistics agency announced annual inflation rose 1.3 per cent in the fourth quarter.

"The stronger-than-expected CPI result prompted a decent market reaction with both the currency and local interest rates pushed higher this morning," said Zoe Wallis, chief economist at Kiwibank.

Analysts had been expecting a rise of 1.2 per cent, according to a Reuters poll.

The currency lost part of its gains in the afternoon, retracing to US$0.7293, but analysts expect it to remain at elevated levels due to weakening US dollar and strong New Zealand economy.

The revival in price growth should reinforce the Reserve Bank of New Zealand's (RBNZ) determination to keep interest rates on hold after slashing to a record low of 1.75 per cent last November, when inflation was hovering at just 0.4 per cent.

Trading was light for the Australian dollar as the currency celebrated Australia Day for hovering around US$0.7575 for the third day.

New Zealand government bonds eased, rising 9.5 basis points at the long end of the curve.

REUTERS