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NZD steady, focus on CPI data

Wednesday 17th April 2019

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The New Zealand dollar is steady against the US dollar as the market awaits domestic inflation data for any further clues on whether a rate cut is on the cards next month. 

The kiwi was trading at 67.60 US cents at 8am in Wellington versus 67.58 at 5pm in Wellington yesterday. The trade-weighted index was at 73.21 from 73.22. 

"Upcoming NZ CPI remains the focus with markets keen to see if the data makes a case for the RBNZ to cut in May," said ANZ FX/Rates strategist Sandeep Parekh.  

Economists expect the consumers price index rose 0.3 percent in the three months ended March 31, for an annual increase of 1.7 percent, according to the median estimate from a poll of economists by Bloomberg. That compares to the Reserve Bank's quarterly projection of 0.2 percent for an annual rise of 1.6 percent.

The central bank surprised markets last month when it switched to an overt easing bias and said the most likely direction of the next move in the official cash rate is down. Several economists are now expecting a rate cut as early as May but today's data will be key. 

The kiwi pared some of its gains against the Aussie, trading at 94.23 Australian cents versus 94.52 Australian cents yesterday. Parekh said the Aussie benefited from weak US industrial production and optimism about the US-China trade. While the kiwi would normally also benefit, uncertainty about the CPI kept it capped. 

News that global dairy prices rose 0.5 percent had little impact as the lift was largely as expected. Mike Shirley, a senior dealer at Kiwibank, noted, however, that the 0.7 percent fall in whole milk powder coupled with a 1.3 percent fall in the prior auction is something "to keep an eye on." WMP makes up the bulk of the auction. 

He also said the kiwi saw a bit of volatility when RBNZ governor Adrian Orr told Reuters that the New Zealand dollar is in its "happy space" at the current level.

Parekh said, however, "the RBNZ will be aware that the only reason the NZD is in its happy space is because there are 40bp of OCR cuts priced in over the next year. Any sign that the RBNZ is unwilling to deliver that could see the NZD back in an “unhappy space” again.

The kiwi was at 51.80 British pence from 51.62, at 59.88 euro cents from 59.77, at 75.69 Japanese yen from 75.65 and at 4.5348 Chinese yuan from 4.5342.


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