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NZ dollar rebounds as inflation data beats market forecasts

Monday 18th April 2016

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The New Zealand dollar recovered ground mid-morning after government figures showed inflation higher than the market expected, keeping the central bank on track to cut interest rates in the next two months.

The kiwi rose to 69.22 US cents as at 5pm in Wellington, from 68.68 cents at the start of the day, when it opened weaker as the price of crude oil fell. It had closed at 69.15 cents in late New York trading on Friday. The trade-weighted index rose to 73.06 from 72.71 on Friday.

The consumers price index rose 0.2 percent in the first quarter, twice the 0.1 percent pace forecast in a Reuters survey, for a 0.4 percent annual gain. Inflation matched the Reserve Bank's estimates, stoking speculation the bank will wait until the June 9 release of its monetary policy statement to cut the official cash rate, giving it more scope to explain its thinking than in the April 28 OCR review. Traders changed their bets on timing after the CPI figures were released, with 43 percent expecting a cut this month and 57 percent seeing the OCR unchanged at 2.25 percent. Before the data more expected a cut this month.

"The market thought the CPI would be a bit worse," said Tim Kelleher, head of institutional sales at ASB Bank. "That's seen a little bit of demand for the kiwi."

The local currency initially tumbled after the CPI was released before bouncing back, which was blamed on a rogue number being published by Bloomberg. The kiwi would face a test at about 69.50 US cents, a level it has struggled to rise above since June last year, Kelleher said.

Traders were looking ahead to Wednesday morning local time when the results of the local GlobalDairyTrade auction will be known. A small increase in prices, about 1 percent, was expected, Kelleher said. Before then, the kiwi was vulnerable to any further weakness in commodity prices after crude oil tumbled following a meeting of oil producing countries over the weekend in the Qatari capital of Doha, where they failed to reach agreement to freeze production, a move that may have helped lift prices.

The kiwi may trade between 67.50 US cents and 71 cents this week, according to 11 currency analysts surveyed by BusinessDesk today. Four expect a gain, four say it will likely remain broadly unchanged while three bet it could decline.

The New Zealand dollar rose to 90.15 Australian cents from 89.32 cents on Friday and gained to 48.81 British pence from 48.67 pence. It rose to 61.31 euro cents from 61.15 cents, fell to 74.65 yen from 75.51 yen, and rose to 4.4825 yuan from 4.4675 yuan.

The two-year swap rate was unchanged at 2.24 percent and 10-year swaps fell 4 basis points to 2.91 percent.

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