* Kiwi rallies as inflation data heats up January rate hike call
* Quiet session overnight with U.S. shut for a holiday
* BOJ kicks off two-day policy meeting, no key data in Asia
By Ian Chua
SYDNEY, Jan 21 The New Zealand dollar shot out of the starting block early on Tuesday after inflation data strengthened the case for higher interest rates at home, leaving behind many of its major peers that are still struggling for inspiration.
The kiwi dollar rallied over half a U.S. cent to $0.8340 after fourth-quarter consumer price index rose 0.1 percent, confounding forecasts for a 0.1 percent fall.
For an economy firing on all cylinders, the data strengthened bets the Reserve Bank of New Zealand could lift rates as early as next week, sparking a turnaround in the kiwi which slid to a one-week low of $0.8212 on Monday.
Michael Turner, strategist at RBC said the breakdown of the data confirmed the domestic economy was starting to generate some inflationary pressures.
"Today's data leave that door (to a January rate hike) well and truly ajar though we continue to see risks remaining skewed toward March," he said.
In contrast, the dollar index was little changed at 81.112, having drifted off a two-month high of 81.296 on Monday in subdued trading due in part to a U.S. holiday.
Against the yen, the greenback edged up to 104.16 from 103.865.
Traders said an absence of market-moving data will probably extend the sluggish session through Asia, keeping the major currencies in tight but familiar ranges.
The euro traded at $1.3555, off Monday's low of $1.3508. It fell nearly 1 percent against the dollar last week after a batch of upbeat U.S. data restored confidence the Federal Reserve will continue to unwind stimulus.
Against the yen, the common currency rose to 141.25 from a six-week low of 140.33.
Key for the yen this week is the outcome of the Bank of Japan policy meeting due on Wednesday. The BOJ is expected to retain a wait-and-see approach, having last year launched a massive stimulus program.
"We're expecting BoJ Governor Haruhiko Kuroda to reiterate his pledge of achieving the 2 percent inflation target by 2015, and the policy meeting may do little to halt the recent strength in the low-yielding currency as the central bank preserves its current policy," said David Song, analyst at DailyFX.
"However, the threat of a slowing recovery may spur a greater rift within the BoJ, where we may see a growing argument to implement a more dovish twist to the forward-guidance for monetary policy."