NZ dollar little changed before inflation report that may yield RBNZ clues

Monday 16th May 2016

The New Zealand dollar was little changed before the release of the inflation expectations report tomorrow that may help guide the market's view on the timing of interest rate cuts by the Reserve Bank.

The kiwi traded at 67.69 US cents as at 5pm in Wellington, from 67.72 cents at the New York close on Friday. It fell to 67.53 cents at the start of the day, in line with a weaker Australian dollar after weaker-than-expected China industrial production, retail sales, and fixed asset data. The trade-weighted index fell to 72.56 from 72.75 on Friday.

Traders will be intently watching tomorrow's quarterly survey, compiled by the Reserve Bank after the previous survey showed firms' inflation expectations fell to the lowest level in more than two decades, which probably contributed to the central bank's decision to cut the official cash rate to 2.25 percent on March 10. Traders said there was a risk expectation may have lifted somewhat in the latest three months, giving the bank less reason to cut rates again in June.

"That was an extraordinarily large fall in inflation expectations. We're expecting to see that reading rise slightly," said Graham Parlane, a senior dealer at OMF. The Reserve Bank had been "very difficult to read" in recent months and may even wait until it has a new macroprudential tool in place to cool the housing market before cutting again, he said.

The introduction of extra measures to take the steam out of housing is likely to be some time away, he said. A bounce back in inflation expectations in tomorrow's report could prompt the market to reduce bets of a cut in June.

The New Zealand dollar may trade in a tight range of 67.45 US cents to 67.95 cents in the next 24 hours, Parlane said.

The kiwi didn't move much after the BNZ-BusinessNZ performance of services index rose 2.6 points to a seasonally adjusted 57.7 last month, the highest level since December and suggesting the economy is growing at a better than average pace heading into the second quarter.

The local dollar may decline this week as traders weigh updates on the inflation outlook and dairy prices, and the US dollar looks set to strengthen, according to a BusinessDesk survey. The kiwi may trade between 65.70 US cents and 69.75 cents this week, according to 10 currency advisers surveyed by BusinessDesk. Seven expect a decline, and three are picking it to be neutral.

The New Zealand dollar slipped to 92.90 Australian cents from 93.16 cents on Friday and was little changed at 47.11 British pence. It was little changed at 59.83 euro cents from 59.79 cents. The kiwi fell to 73.61 yen from 74 yen and dropped to 4.4161 yuan from 4.4337 yuan.

The two-year swap rate fell 2 basis points to 2.19 percent and the 10-year swaps fell 3 points to 2.82 percent.

BusinessDesk.co.nz

Comments from our readers

No comments yet