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NZ dollar at 2-week high as inflation lowers rate cut expectations

Wednesday 17th October 2018

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The New Zealand dollar rose to a two-week high as yesterday's stronger than expected inflation data lowered traders' expectations for a rate cut. 

The kiwi increased to 65.90 US cents as at 8am in Wellington from 65.68 cents yesterday. The trade-weighted index edged up to 71.87 from 71.75. 

Traders have pared back their bets on the Reserve Bank cutting the official cash rate. The overnight index swaps curve implies an 18 percent chance of a lower rate by August next year, down from 24 percent. Local data yesterday showed the annual pace of inflation rose to 1.9 percent in the September quarter, higher than all forecasts including the RBNZ's 1.4 percent prediction. 

"We still find it highly unlikely that the RBNZ would cut rates in the current environment and expect easing expectations to continue to fade over time," Bank of New Zealand senior markets strategist Jason Wong said in a note. "The NZD faded after the initial move higher, but has regained that ground in overnight trading." 

The GDT price index dipped 0.3 percent at the Global Dairy Trade auction overnight, with prices for whole milk powder falling 0.9 percent to US$2,729 a tonne. That was a smaller decline than futures pricing indicated. 

No local data is scheduled for today. Tomorrow's release of minutes to the Federal Reserve's last policy meeting will be watched but isn't expected to shift traders' views. 

The kiwi traded at 49.95 British pence from 49.97 pence yesterday and increased to 57.90 euro cents from 56.73 cents after European Union chief Brexit negotiator Michel Barnier said more time was needed to reach an agreement. 

The local currency rose to 4.5524 Chinese yuan from 4.5472 yuan yesterday and advanced to 73.90 yen from 73.54 yen. It traded at 92.28 Australian cents from 92.13 cents yesterday. 


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