Dollar makes erratic start as global inflation rises; kiwi jumps


The dollar got off to a choppy start to the week on Monday as the kiwi and pound rose after a surge in inflation in New Zealand and hawkish remarks from the UK central bank governor that drew investors' attention to raising rates.

The dollar index is now down about 0.6 per cent from last week's 2021 highs as investors believe that while price pressures may push the Federal Reserve higher, other central banks may need to act more aggressively during the tightening cycle.

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New Zealand reported on Monday the biggest quarterly jump in consumer prices in a decade. Bank of England Governor Andrew Bailey said on Sunday that rising energy prices would extend the momentum of inflation and policymakers "will have to act" if they see risks.

The data lifted the kiwi by about 0.3 per cent to a one-month high of $0.7105. Sterling rose 0.1% to $1.3762, just below Friday's monthly high of $1.3773.

The Australian dollar was also close to its highest level in six weeks, hovering around $0.7413. Oil futures hit new three-year highs and fuelled expectations that global supply chains expect prices to rise further.

"The rest of the world is probably outpacing US inflation at the moment and this is putting more pressure on these central banks than the US," said Thai Exness Asia analyst Somchai Wongrat.

In New Zealand, he said, an unexpected jump in prices would only reinforce the need for the Reserve Bank of New Zealand to stay the course, he added.

The dollar rose slightly against the euro and remained stable against the yen, last trading at $1.1587 per euro and buying 114.22 yen.

Bitcoin, lauded as a hedge against inflation and pinned high hopes on US approval of a futures exchange-traded fund that would channel cash into the sector, narrowly missed its record peak of $64,895. The last time it was bought was $62,233.

Federal funds futures are now fully factoring in a US rate hike starting next September as inflationary pressures increase, but a relatively shallow cycle is expected, with pricing suggesting rates could hold at 1.5% until 2026.

Swap pricing suggests that more rapid and prolonged action is now more likely elsewhere - with an almost 30% probability of a Bank of England rate hike this year and almost 80 basis points of rate hikes through 2022.

Even in Australia, where the central bank is pushing for rates to remain in place until 2024, swaps are price hikes to start in mid-2022, with 100 basis points of a rise even before 2024.

China's gross domestic product data is due out on Monday, with analysts expecting growth to slow, with a big focus on China's credit markets, where a lot of developers have coupon payments due.

The yuan has been steady in offshore trade at 6.4324 per dollar.