NZ dollar edges lower after tepid inflation expectations, bond postponement

Monday 6th November 2017

The New Zealand dollar dipped against the greenback after inflation expectations remained tepid and after the NZ Debt Management Office postponed a 10-year bond tender.

The kiwi traded at 68.92 US cents as at 5pm from 69.01 cents as at 8am in Wellington from 69.05 cents on Friday in New York. The trade-weighted index fell to 73.22 from 73.48 last week.

The Reserve Bank's survey of expectations showed inflation expectations remain tepid, adding to the view that the central bank will keep rates on hold at a record low 1.75 percent on Thursday and continue to forecast they will stay that way until at least September 2019. All 16 economists polled by Bloomberg expect the central bank to keep rates on hold.

"I think the kiwi fell on the back of the two-year inflation expectations," said Ross Weston, a senior trader at Kiwibank.

ANZ Bank New Zealand senior economist Phil Borkin said the main driver of the kiwi dollar's weakness was news the DMO postponed the April 20, 2029 nominal bond to 2018, saying the government is flush with cash and it wants to give market participants an opportunity to evaluate any new information that may be contained in the half-year fiscal update.

"The long end yields have fallen reasonably sharply and I think the currency is just under pressure on the back of that," said Borkin. The yield on the 10-year government bond fell 9 basis points to 2.78 percent.

New Zealand's two-year swap rate rose 1 basis point to 2.16 percent and 10-year swaps fell 1 basis point to 3.09 percent.

The kiwi edged up to 78.81 yen from 78.76 yen last week after Bank of Japan governor Haruhiko Kuroda said that price movements in Japan are still weak despite recent economic improvements, pledging to persistently continue powerful easing under the current framework, according to Dow Jones Newswires.

Looking ahead, markets will be waiting to see what the Reserve Bank of Australia says at tomorrow's rate review, followed by the RBNZ on Thursday.

The kiwi traded at 4.5694 Chinese yuan from 4.5822 yuan last week and at 89.97 Australian cents from 90.24 cents last week. It slipped to 52.69 British pence from 52.80 pence, and traded at 59.32 euro cents from 59.47 cents.

(BusinessDesk)

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