The New Zealand dollar hopped to a one-week high on Wednesday after a central bank survey showed the country's inflation expectations had rebounded, pulling the Australian dollar along. The kiwi dollar was up 0.7 percent at $0.7324, the highest since February 7 and well above a recent one-month trough of $0.7176.
The Reserve Bank of New Zealand's (RBNZ) quarterly survey of expectations showed business managers forecast annual inflation to average 2.11 percent over the coming two years, up from 2.02 percent in the previous survey. The results snapped two previous quarters of falls and should be a relief to the RBNZ as consumer prices have remained sluggish, forcing it to keep rates at a record low 1.75 percent since late 2016.
"The fact that one- and two-year ahead inflation expectations did not fall was interesting," said Westpac Chief Economist Dominick Stephens. Across the Tasman Sea, the Australian dollar edged up to $0.7878 compared with a more than one-month low of $0.7759 set last week.
New Zealand government bonds rose, sending yields 3-4 basis points lower at the long-end of the curve. Australian government bond futures nudged higher too, with the three-year bond contract up 1.5 ticks at 97.875. The 10-year contract added 3 ticks to 97.1600.
Investors were now awaiting US inflation data due later in the day which could reignite fears of faster rate hikes in the world's largest economy. Median forecasts are for US consumer price inflation to slow a little to 1.9 percent in January, mainly due to the base effect of a high reading last year dropping out of the calculation. The core measure is seen ticking down to 1.7 percent. A result in line with or below expectations would likely be a big relief for financial markets, while anything higher could well spook investors, lift bond yields and batter stocks.
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