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NZ dollar heads for 0.7% weekly decline as RBNZ's presses rate cut bias

Friday 14th October 2016

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The New Zealand dollar is heading for a 0.7 percent fall against the greenback this week as the Reserve Bank reminded investors it plans to cut interest rates again, while the Federal Reserve is looking more likely to raise rates in the US. 

The kiwi fell to 71.05 US cents at 5pm in Wellington from 71.58 cents on Friday in New York last week. It was up from 70.57 cents yesterday. 

The New Zealand currency hit a 10-month low on the diverging rate track between the US and New Zealand in a week where there was little local data to drive markets. The greenback has been rallying on mounting speculation the Fed will raise rates in December, while RBNZ assistant governor John McDermott this week reiterated the bank's position that it will cut the official cash rate again. Next week's local inflation data will be key to the RBNZ's thinking and is expected to remain below the central bank's target band. 

"They've portrayed that pretty clearly and it would be a major letdown to back away from that," said Mark Johnson, senior dealer foreign exchange at OMF in Wellington. "The markets have largely limped to a bit of a close this week" as the currencies such as the kiwi and Australian dollars get stuck range-trading, he said. 

The kiwi has support at 70.50 US cents and resistance at 71.30 cents, with all eyes on next week's September consumers price index data, Johnson said. 

The trade-weighted index was little changed at 76.42 from 76.35 last week, bolstered by the slumping British pound on the prospect of a hard Brexit and as a rampant greenback weighed on the euro. The kiwi advanced to 58.08 British pence from 57.88 pence yesterday, and is heading for a 0.9 percent gain, while it increased to 64.39 euro cents from 63.99 cents and is heading for a 0.8 percent rise. 

New Zealand's two-year swap rate increased three basis points to 2.03 percent, and 10-year swaps advanced two basis points to 2.59 percent. 

The kiwi traded at 93.63 Australian cents from 93.61 cents yesterday and gained to 73.88 yen from 73.25 yen. It rose to 4.7778 Chinese yuan from 4.7444 yuan yesterday as weaker than expected trade figures and signs of inflation weighed on China's currency.

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