By Cecile Lefort and Rebecca Howard
SYDNEY/WELLINGTON, Jan 20 (Reuters) - The New Zealand dollar skidded to four-month lows on Wednesday after benign inflation data narrowed the odds on further interest rate cuts, while the Australian dollar AUD=D4 was hit by another slide in oil prices.
The New Zealand dollar NZD=D4 dropped more than a U.S. cent to $0.6370 after New Zealand's consumer price index (CPI) fell 0.5 percent in the fourth quarter led by lower food and petrol prices. inflation slowed to just 0.1 percent, compared with 0.4 percent in the previous quarter.
Economists polled by Reuters had forecast a drop of 0.2 percent for the quarter, with an annual rise of 0.4 percent.
"This should have the RBNZ (Reserve Bank of New Zealand) very concerned," said ASB Senior Economist Jane Turner.
"Rate cuts, in our view, are a matter of when, not if. We continue to expect 25 basis point OCR cuts in June and August," she added. "But we see an increased risk that cuts could happen earlier than June, particularly if domestic and offshore economic conditions continue to deteriorate."
While the majority of economists expect the central bank to stand pat on rates at its Jan. 28 rate review, further easing is seen likely later in the year.
The kiwi was hit hard against the euro which jumped to NZ$1.7159 EURNZD=R , the highest since mid-October. The Australian dollar climbed to a one-month peak of NZ$1.0811. AUDNZD=R
Against its U.S. peer, the Aussie was pulled back under U.S. 69 cents AUD=D4 after oil prices dropped to 12-year lows and shook risk sentiment. It was last at $0.6893, having touched a peak of $0.6957 on Tuesday.
The Aussie fell to a 7-year low of $0.6827 last week and a break under this could see a retracement all the way to 63 cents.
Australian government bond futures were quiet, having retreated from recent two-month peaks. The three-year bond contract YTTc1 was steady at 98.100.
The 10-year contract YTCc1 rose 1 tick to 97.3000, while the 20-year contract YXXc1 eased half a tick to 96.7850.
New Zealand government bonds 0#NZTSY= gained on the back of the CPI, sending yields 6 basis points lower at the short end and 5.5 basis points lower at the long end.
(Editing by Shri Navaratnam)