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NZ dollar falters ahead of next week's domestic rate decision

Friday 3rd May 2019

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The New Zealand was weaker ahead of next week’s domestic policy review and as investors pare back expectations of any rate cut in the United States.

The kiwi was trading at 66.15 at 9am in Wellington versus 66.31 US cents at 5pm in Wellington. The trade-weighted index was at 72.27 from 72.33.

The greenback got a lift after US Federal Reserve chairman Jerome Powell said factors keeping inflation muted might be “transitory,” leading markets to pare back expectations that the US might move to cut rates.

In New Zealand, meanwhile, markets now see more than a 50 percent change that rates could cut at next Wednesday’s policy review, in particular after soft inflation, soft economic growth and soft jobs data.

“We expect the recent string of soft economic data will be enough for the Reserve Bank of New Zealand to cut rates to 1.50 percent when it meets next week on Wednesday,”  Capital Economics said in a note.

In March, governor Adrian Orr surprised markets when he said the next move was likely a rate cut.

While Capital Economics noted that next week’s meeting is the first to take place under a new committee structure that includes external members “we don’t expect the new committee members or structure to make any significant differences to the future direction of monetary policy,” it said.

Ahead of the RBNZ, investors will be watching for US non-farm payrolls data overnight Friday and for the Reserve Bank of Australia’s policy decision  next Tuesday.

The US unemployment rate could retouch a 50-year low of 3.7 percent, according to MarketWatch. Economists expect the US to have added 217,000 new jobs last month.

Earlier this week, US data showed the number of people who applied for jobless benefits at the end of April stood at a three-month high of 230,000 for the second week in a row. However, analysts said the recent increase in new claims is likely inflated by the recent Easter holiday and spring break.

In Australia, futures markets indicated a one-in-three chance that the RBA could cut rates, as inflation is soft and house prices are under pressure. A rate cut in Australia would increase the odds that the New Zealand central bank might also cut rates.

The New Zealand dollar was trading at 94.46 Australian cents from 94.39, at 50.74 British pence from 50.79, at 59.21 euro cents from 59.16, at 73.78 Japanese yen from 73.96 and at 4.4557 Chinese yuan from 4.4615.


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