By Jonathan Underhill
The New Zealand dollar rose against its Australian counterpart after Australia posted its weakest inflation in seven years, sparking speculation of an interest hike across the Tasman just as the market is preparing for the local Reserve Bank's rate decision.
The kiwi rose to 90.12 Australian cents as at 5pm in Wellington from 88.90 cents before the inflation figures were released and from 89.16 cents late yesterday.
The local currency rose to 68.81 US cents from 68.57 cents on Tuesday.
Australia's consumer price index fell 0.2 percent in the first quarter, the biggest quarterly decline since December 2008, undershooting market forecasts and raising the possibility that the Reserve Bank of Australia will cut its cash rate from 2 percent next week.
That's an extra wrinkle for bets on the Reserve Bank of New Zealand, which is expected to wait until June to cut instead of moving on Thursday when its review is due three hours after the Federal Reserve's latest statement.
"That would add fuel to the fire for the RBNZ tomorrow," said Mark Johnson, senior dealer at OMF.
The market has officially priced in just a 35 percent chance of a cut to the official cash rate while the chances of a cut at the full monetary policy statement on June 10 are put at 86 percent.
A good outcome for Wheeler would be a relatively hawkish statement from Fed chair Janet Yellen and a cut to the OCR on Thursday, which would give the kiwi dollar some "good downward momentum" and may help revive inflation in the tradables sector.
The trade-weighted index rose to 72.67 from 72.59 late yesterday.
The kiwi fell to 47.16 British pence from 47.41 British pence yesterday and dropped to 60.83 euro cents from 61.04 cents. The local currency was little changed at 76.37 yen and slipped to 4.4628 yuan from 4.4656 yuan.
The two-year swap rate was unchanged at 2.20 percent and the 10-year swaps were steady at 2.99 percent.