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NZ dollar firms on mixed US data; flat CPI expected

Monday 21st January 2019

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The New Zealand dollar firmed against its US counterpart after data on Friday sent mixed signals on the depth of the economic slowdown there.

The kiwi was trading at 67.59 US cents at 8.45am in Wellington, from 67.41 cents in New York on Friday and 67.61 cents here. The trade-weighted index was at 73.30 from 73.10 in New York and 73.18 here late Friday.

The local dollar fell 1.3 percent against the US dollar last week. Positive signs on the US-China trade front and a more benign inflation outlook there were in contrast to weak December credit card spending and house sales in New Zealand, but stronger than expected dairy prices.

On Friday, the US Federal Reserve reported a stronger-than-expected 1.1 percent jump in December manufacturing activity – the biggest gain since February – while the University of Michigan reported a 7.7 percent drop in consumer sentiment – the steepest drop in more than three years. The university attributed the drop to the partial government shutdown, tariff tensions, unstable financial markets and the slowing global economy.

Trade is expected to be light today, given the Wellington Anniversary Day holiday. The main focus locally will be on December consumer price data due Wednesday. Most economists are expecting little movement in the headline figure, given the drop in fuel prices last month.

ASB, which is picking a 0.5 percent increase in non-tradable inflation for the quarter, expects the central bank’s estimate of annual core inflation to come in at 1.7 percent.

“As a result, the RBNZ is likely to remain comfortable leaving monetary policy settings unchanged and maintain the view that underlying inflation pressures will slowly build,” the bank said in a client note Friday. "We expect the RBNZ to leave the OCR on hold until at least August 2020.”

The kiwi was at 52.37 British pence, from 52.12 pence here Friday, and at 59.22 euro cents from 59.32.  It rose to 94.12 Australian cents from 94.01 cents, to 74.15 Japanese yen from 73.19, and fell against the Chinese yuan from 4.5796 to 4.5820.


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