WELLINGTON, Jan 26 (Reuters) - The New Zealand dollar surged on Thursday as much-awaited data showed inflation was back in the central bank's target range for the first time in two years, while the neighbouring Aussie tread water on the country's national holiday.
The Kiwi NZD=D4 hit a ten-week high of $0.7314, up from around $0.7260 before the country's statistics agency announced annual inflation rose 1.3 percent in the fourth quarter. stronger-than-expected CPI result prompted a decent market reaction with both the currency and local interest rates pushed higher this morning," said Zoe Wallis, chief economist at Kiwibank.
Analysts had been expecting a rise of 1.2 percent, according to a Reuters poll.
The currency lost part of its gains in the afternoon, retracing to $0.7293, but analysts expect it to remain at elevated levels due to weakening U.S. dollar and strong New Zealand economy.
The revival in price growth should reinforce the Reserve Bank of New Zealand's (RBNZ) determination to keep interest rates on hold after slashing to a record low of 1.75 percent last November, when inflation was hovering at just 0.4 percent.
Trading was light for the Australian dollar AUD=D4 as the currency celebrated Australia Day for hovering around $0.7575 for the third day.
New Zealand government bonds 0#NZTSY= eased, rising 9.5 basis points at the long end of the curve.