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NZ dollar jumps to 2-month high vs Aussie as inflation outlook stokes RBA rate cut bets

Friday 13th May 2016

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The New Zealand dollar jumped to its highest level against the Australian dollar in more than two months, after expectations for Australian inflation fell, stoking speculation of further interest rate cuts in that country.

The kiwi touched 93.22 Australian cents, and was trading at 93.04 cents at 8am in Wellington, from 93.03 cents at 5pm yesterday. The local currency slipped to 68.16 US cents from 68.31 cents.

Traders have been increasing their bets for future interest rate cuts in Australia after the Reserve Bank of Australia surprised many economists by cutting the benchmark interest rate this month following weaker-than-expected first quarter inflation data. Expectations for future cuts were stoked further after yesterday's Melbourne Institute survey of consumer inflationary expectations, which measures the consumer’s view of price stability over the next year, showed expectations fell to 3.2 percent from 3.6 percent.

"The Australian dollar is the weakest major currency," Bank of New Zealand currency strategist Jason Wong said in a note. "Inflation expectations data are usually ignored, but with heightened sensitivity about the inflation outlook at present, a drop in a consumer-focused measure from 3.6 percent to 3.2 percent triggered some Australian dollar selling."

BNZ's Wong said the kiwi had strong technical resistance around 95 Australian cents, and he doesn't see the cross sustainably falling below 90 cents again this year.

In New Zealand today, the local focus will be on first quarter retail sales data released at 10:45am.

The New Zealand dollar slipped to 47.16 British pence from 47.30 pence yesterday. It edged up to 59.91 euro cents from 59.80 cents, gained to 4.4393 yuan from 4.4412 yuan, unchanged at 74.33 yen.

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