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NZ dollar gains ahead of inflation data seen keeping RBNZ on track for November rate cut

Monday 17th October 2016

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The New Zealand dollar rose ahead of third-quarter inflation data tomorrow which is expected to be weak enough to keep the Reserve Bank on track to cut interest rates next month.

The kiwi rose to 71.09 US cents as at 8am in Wellington from 70.84 cents in late New York trading on Friday. The trade-weighted index rose to 76.48 from 76.18.

The consumers price index didn't budge in the third quarter and rose just 0.1 percent year-on-year, according to economists at Bank of New Zealand. That's weaker than the Reserve Bank was projecting in its August monetary policy statement. RBNZ assistant governor John McDermott said last week that the bank's current assumptions "indicate that further policy easing will be required to ensure that future inflation settles" within the bank's 1 percent-to-3 percent target range. Traders have increased bets the bank will cut the official cash rate to 1.75 percent at its next MPS on Nov. 10.

"A cut appears almost a done deal," said Kymberly Martin, senior market strategist at BNZ. While the RBNZ has projected stronger inflation than the market, with a year-on-year rise of 0.2 percent, "it has already made clear the error band around this forecast is 0-0.5 percent. This implies the Bank would need to see a print above 0.5% to be genuinely surprised and consider backing-off a November cut. We see this as unlikely."

Ahead of tomorrow's inflation data, traders will be watching for the performance of services (PSI) report for September due out this morning after its manufacturing counterpart, the PMI, rose to a seasonally adjusted 57.7 in September from 55.2 in August.

The kiwi dollar edged up to 93.15 Australian cents from 93.06 cents and gained to 58.51 British pence from 58.10 pence on Friday in New York. It rose to 64.82 euro cents from 64.53 cents and climbed to 74.13 yen from 73.77 yen. It strengthened to 4.7841 yuan from 4.7652 yuan.

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