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NZ dollar slips ahead of inflation data tomorrow that may show tepid price pressures

Monday 16th July 2018

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The New Zealand dollar fell ahead of second-quarter inflation figures tomorrow that are expected to confirm price pressures remain tepid, keeping interest rates low for now.

The kiwi traded at 67.58 US cents as at 8am in Wellington from 67.63 cents in New York on Friday and from 67.75 cents in Wellington at the end of last week. The trade-weighted index fell to 72.44 from 72.46 in New York.

The Reserve Bank has forecast a 0.4 percent rise in the consumers price index in the second quarter for an annual increase of 1.5 percent - below the 2 percent level the bank targets over time. However, ANZ Bank New Zealand expects CPI rose just 0.1 percent in the three months ended June 30 for a 1.1 percent annual rate, keeping the central bank cautious and monetary policy in a "neutral stance."

"The kiwi continues to struggle, as poor domestic data and the uncertain global trade backdrop take their toll," said Miles Workman, an economist at ANZ Bank, in a note. "The local CPI release tomorrow will be a critical event to determine whether this weakness can continue, especially at a time when market positioning (apparently) still remains extremely short."

Last week started with headlines about a worsening trade war between the US and China but as those headlines abated the CBOE Volatility Index, or VIX, retreated, dropping more than 3 percent on Friday.

Today traders in New Zealand will be watching for the performance of services index (PSI) for June for another piece of evidence on the pace of the domestic economy. In Asia today, China is set to release second-quarter gross domestic product, and retail sales and industrial production for June, which will provide an update on the pace of growth in New Zealand's biggest export market.

The kiwi dollar rose to 75.90 yen from 75.76 yen in New York on Friday. "The market is awaiting further clarity on the latest US-China trade escalation, but this cross still remains susceptible to the downside," Workman said.

The kiwi rose to 91.12 Australian cents from 90.84 cents and traded at 51.08 British pence from 50.98 pence. It traded at 57.81 euro cents from 57.78 cents and rose to 4.5211 yuan from 4.5124 yuan.


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