* Kiwi rallies as inflation data heats up January rate hike
* 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
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
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