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TWI heads for 1.8% weekly decline; RBNZ update keeps markets guessing

Friday 15th July 2016

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The New Zealand dollar is heading for a 1.8 percent weekly fall on a trade-weighted basis as traders second-guess what the Reserve Bank will say when it gives an updated view on the economy next Thursday, and ahead of Monday's inflation print.

The trade-weighted index fell to 76.13 from 77.54 last week, and is down from 76.81 yesterday. The kiwi is heading for a 2.1 percent weekly drop against the greenback, trading at 71.54 US cents at 5pm in Wellington from 73.04 cents on Friday in New York last week, and down from 72.04 cents yesterday. 

The Reserve Bank surprised investors when it said it will "issue a brief update on its economic assessment" on July 21 because of the longer gap between meetings in the bank’s new timetable. Traders are pricing in a 68 percent chance governor Graeme Wheeler will cut the official cash rate a quarter-point to 2 percent on Aug. 11, having previously priced in a 40 priced chance. 

"People are expecting them to adjust their view and possibly increase the bets on a rate cut," said Mitchell McIntyre, senior corporate foreign exchange dealer at NZForex in Auckland. "It's all speculation at this stage, but the kiwi's taken a bit of a walloping." 

McIntyre said the kiwi will probably find support between 71.20-and-71.50 US cents. 

Government figures showed China's gross domestic product grew 6.7 percent in the second quarter from a year earlier, beating expectations, and stoking demand for Australia's currency on the prospect the nation will benefit from its trading partner's robust growth. The kiwi dollar would typically follow suit, though McIntyre said it was left behind because of the uncertainty posed by the RBNZ's looming review. 

The kiwi dropped to 93.70 Australian cents from 94.69 cents yesterday and fell to 4.7803 Chinese yuan from 4.8181 yuan. 

The local currency declined to 53.25 British pence from 54.56 pence yesterday and dropped to 64.27 euro cents from 64.88 cents. It rose to 75.73 yen from 75.42 yen yesterday. 

New Zealand's two-year swap rate was unchanged at 2.18 percent and 10-year swaps increased four basis points to 2.58 percent.

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