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New Zealand dollar heads for 1.7% weekly fall as RBNZ talks down early rate hikes

Friday 10th February 2017

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The New Zealand dollar is heading for a 1.7 percent fall against the greenback this week, in a quiet end to the week after the central bank signalled plans to keep interest rates hold for some time yet.

The kiwi dropped to 71.91 US cents as at 5pm in Wellington from 73.15 cents on Friday in New York last week, and little changed from 71.84 cents as at 8am and  71.96 cents late yesterday. The trade-weighted index was at 78.36 versus 78.32 yesterday and heading for a 0.9 percent weekly decline.

"Compared to the excitement of yesterday, it's been relatively stable today. It has ground a tiny little bit higher in Asia but the gains were very modest in a quiet day," said ANZ Bank New Zealand senior economist Philip Borkin. The kiwi fell sharply Thursday after the central bank kept interest rates on hold at 1.75 percent and projected the official cash rate to rise just 25 basis points by 2020.

With little on the domestic data calendar, Borkin said the kiwi is likely to continue treading water around these levels.  While the market is still testing early hikes and most economists think hikes are going to be earlier than the central bank is forecasting "it is really going to take evidence that inflation is picking up" to drive any moves, he said  The market pricing for a November rate hike is around 50 percent.

Borkin also noted that with few drivers on the data front in the US, the focus will remain on politics. He said markets will be waiting for further detail on possible tax cuts after US President Donald Trump's overnight hints. While he said any clarity could be weeks away it has brought the idea of fiscal stimulus "back to the markets' mind" and it will likely be the next catalyst that will move the US dollar significantly.

The kiwi fell to 93.98 Australian cents from 94.40 cents late yesterday, which benefited from positive Chinese trade data.  It was unchanged at 57.49 British pence and was at 67.45 euro cents from 67.31 cents. The kiwi rose to 81.73 yen from 80.68 yen and was at 4.9453 yuan versus 4.9423 yuan.

New Zealand's two-year swap increased 2 basis points to 2.3 percent while the 10-year swaps rose 5 basis points to 3.43 percent.

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