FOREX -Kiwi rallies on hawkish RBNZ, euro eyes ECB speech

Thu Apr 24, 2014 1:34am EDT

Related Topics

* Kiwi rallies after RBNZ signals more rate hikes ahead

* Euro awaits speech by head of ECB

* Yen supported as Tokyo shares slip on lack of US-Japan trade pact (Updates levels, adds comments)

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, April 24 (Reuters) - The New Zealand dollar rallied on Thursday after the country's central bank raised interest rates and signalled more hikes ahead, while caution ahead of a speech by the European Central Bank's president kept the euro subdued.

The kiwi climbed to a one-week high of $0.8638 after the Reserve Bank of New Zealand said it would continue to tighten to stay on top of inflationary pressures. As expected, it hiked its cash rate to 3.0 percent from 2.75 percent.

Some in the market had thought it might signal a slowing in the pace of further rate hikes given a stubbornly strong currency and still moderate inflation.

Still, analysts said further gains in the kiwi might be limited.

"We believe further NZD appreciation is likely to be capped within a cent of current rates as the tightening cycle is fairly priced," said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore.

The New Zealand dollar last traded at $0.8624, up 0.4 percent on the day.

The kiwi also rose against the yen, euro and its Australian counterpart, which suffered heavy losses on Wednesday in the wake of unexpectedly soft inflation data.

Both Antipodean currencies were among some of the biggest movers this week, in contrast to the G3 currencies which stayed in all-too familiar territory.

The safe-haven yen gained a slight lift versus the dollar as Tokyo shares extended losses in the afternoon, after Japanese Prime Minister Shinzo Abe said that a trade deal with the United States has not been finalised yet.

Speaking at a joint news conference after a summit meeting with U.S. President Barack Obama, Abe said Japan and the United States would continue bilateral talks on an Asia-Pacific regional free trade pact.

Mollifying Japan's powerful farmers' lobby and completing a successful trade pact is seen as a key test of whether Abe can deliver the "third arrow" - structural reform - to go with two others that have already been deployed: fiscal and monetary stimulus measures.

The dollar last fetched 102.30 yen, down 0.2 percent.

On Friday, the yen could take its cues from Japanese inflation data. Core consumer prices in Tokyo are expected to have risen the most in 22 years in April, driven by an increase in the country's sales tax.

"Looking at moves in the market over the past few days, it seems as if risk appetite among short-term players has weakened," said Teppei Ino, Singapore-based analyst for Bank of Tokyo-Mitsubishi UFJ.

Against this backdrop, the dollar could come under pressure against the yen if the inflation data comes in strong and dampens speculation about additional Bank of Japan monetary easing, Ino said.

The euro held steady at $1.3822, leaving it just a shade firmer on the week.

Traders said the common currency could struggle ahead of a speech by ECB President Mario Draghi, although they conceded that it would be hard for him to sound any more dovish.

His speech comes a day after a survey showed the euro zone private sector started the second quarter on its strongest footing since 2011.

Also, Draghi has already said the bank will ease policy further if the euro keeps strengthening, although he has been vague on the timing. (Editing by Chris Gallagher)

FILED UNDER: