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NZ dollar stalled ahead of CPI data; IMF trims global outlook

Tuesday 22nd January 2019

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The New Zealand dollar was little changed with investors awaiting tomorrow’s local consumer price data for guidance on the future interest rate track here.

The kiwi was trading at 67.26 US cents at 8:30am, from 67.23 US cents late yesterday. The trade-weighted index was at 73.01 from 72.93.

The kiwi drifted below 67.20 cents yesterday – near a two-week low – in the absence of fresh drivers. US markets are closed for the Martin Luther King holiday.

Manufacturing data in the US on Friday was stronger than expected, while China’s slightly slower 6.4 percent GDP growth in the December quarter was as expected yesterday and stirred little reaction although it was the slowest since 1990.

Overnight, the International Monetary Fund warned of the risks to the global economy from a prolonged trade war or a chaotic Brexit. It trimmed its 2019 global growth forecast to 3.5 percent, down 0.2 from its last forecast in October.

Most analysts are picking New Zealand consumer prices rose about 0.1 percent in the December quarter but “the tail is weak with a few looking for a small fall,” TD Securities said in a client note. “A small fall will weigh on the kiwi.”

Investors are sifting mixed signals in both the international and domestic economies for growth indicators for the rest of the year. Weak local December credit card spending and house sales was balanced by another strong lift in dairy prices. Employment also remains strong.

TD said a “soft” inflation number tomorrow would not detract from its long-held view that the New Zealand economy does not need a rate cut.

While a 50 percent chance of an interest rate cut by November is priced into wholesale interest rate markets, that seems unnecessary given that full employment, buoyant domestic demand and solid export growth should deliver GDP growth of more than 3 percent a year through to 2020.

“The economy is in good shape and in our view the RBNZ needs to keep its powder dry for the next 'real' crisis, not mitigate business sector rebellion or prop up a softer housing market.”

The kiwi dollar was recently at 52.18 British pence from 52.27 pence yesterday, and at 59.14 euro cents from 59.09 cents.

Overnight, UK Prime Minister Theresa May rejected calls for a second Brexit referendum, any extension of the Article 50 deadline for its EU departure at the end of March, and a no-deal outcome.

Instead, she pledged to seek changes from Brussels on the Irish backstop, and will give MPs more say on future trade discussions.

Westpac observed that May appears to be “trapped by a series of intra-party, national and EU related “red-lines” that make compromise exceedingly difficult.”

The kiwi firmed to 93.97 Australian cents this morning, from 93.79 cents late yesterday. It was at 73.75 Japanese yen, from 73.69 yen, and at 4.5690 Chinese yuan, from 4.5619 yuan late yesterday.


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