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NZ dollar heads for 0.8% weekly decline after RBNZ affirms rates to stay low

Friday 11th May 2018

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The New Zealand dollar is heading for a 0.8 percent weekly decline against the greenback after the Reserve Bank said interest rates will remain on hold but did pare some of those losses on soft US inflation data. 

The kiwi traded at 69.60 as at 5pm in Wellington from 69.12 cents late yesterday and down from 70.18 cents last Friday in New York. The trade-weighted index was at  72.72 from 72.44 late yesterday. 

The kiwi, which was already under pressure from a stronger greenback, fell to a five-month low when Reserve Bank governor Adrian Orr kept the official cash rate at 1.75 percent yesterday and said the direction of the next move is equally balanced and could be up or down. The kiwi did pare some of those losses, however, when the US consumer price index rose 0.2 percent in April, missing estimates of a 0.3 percent gain, easing concerns about a faster pace of interest rate increases in the US.

Martin Rudings, senior dealer foreign exchange at OMF, said the while the US dollar "still appears to be on the backfoot," the reaction may have been overdone given that other US inflation gauges are higher. In late April, data showed the Commerce Department's price index for person-consumption expenditure - the Federal Reserves' preferred gauge - was up 2 percent on the year in March. 

"I am still a US dollar bull... I think the risk is that we have a US dollar rally," said Rudings. 

He said the euro is the most vulnerable currency as the market awaits a speech from European central bank president Mario Draghi later in the global trading day.  "That's why the market has gone quiet as there is a risk that he could say something to drive the euro down."

He said the kiwi could squeeze up against the euro ahead of that speech and if the euro takes a tumble, the kiwi could benefit against all the crosses. 

The kiwi traded at 58.41 euro cents from 58.24 cents late yesterday. It traded at 51.45 British pence from 50.92 British pence, after getting an overnight lift when the Bank of England held rates unchanged and cut its growth and inflation outlook. 

The New Zealand dollar traded at 92.39 Australian cents, holding near the three-month low it reached yesterday of 92.30 cents. The local currency rose to 4.4151 yuan from 4.3973 yuan and lifted to 76.19 yen from 75.83 yen.

New Zealand's two-year swap rate fell 1 basis point to 2.20 while 10-year swaps fell 2 basis points to 3.15 percent.


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