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NZ dollar heads for 2.1% weekly gain as traders see dwindling chance of rate cut

Friday 3rd June 2016

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The New Zealand dollar is heading for a 2.1 percent weekly gain against the greenback as traders dial back their expectations for another rate cut by the Reserve Bank. 

The kiwi rose to 68.29 US cents at 5pm in Wellington from 66.91 cents on Friday in New York last week. It was up from 67.98 cents at 8am and 68.15 cents yesterday. The trade-weighted index advanced to 73.62 from 73.45 yesterday and is heading for a 1.5 percent gain over the week. 

New Zealand's Reserve Bank is expected to keep the official cash rate at 2.25 percent next week with the growing prospect of a hike by the US Federal Reserve and more robust economic data seen as reducing the need for another cut. Fed officials have been consistent in their view that next month's meeting is "live" and if the US central bank did raise the federal funds rate that should stoke demand for the greenback, pushing down the kiwi which would lift locally imported inflation. 

"On one hand, people think there's more scope for higher interest rates in the US, but on the other, the chance of interest rate cuts in New Zealand is looking less likely," said Phil Borkin, senior economist at ANZ Bank New Zealand in Auckland. "At the moment the New Zealand dollar is doing okay, and might be winning out with economic data in New Zealand still looking bloody good." 

Government figures today showed the volume of building activity rose 5.5 percent in the March quarter, underpinned by a large pipeline of work in Auckland, the country's biggest city. Separate data showed Auckland house prices were stabilising, while another survey showed local commodity prices rose in May. 

ANZ's Borkin said the question for New Zealand's strong construction and tourism sectors was how much longer they could keep expanding before reaching capacity. 

Traders will be watching US jobs data on Friday in New York for another gauge on the world's biggest economy before Fed chair Janet Yellen delivers a speech to the World Affairs Council in Philadelphia on Monday about the economic outlook and monetary policy. 

Australia's Reserve Bank will review policy on Tuesday next week followed by New Zealand's central bank on Thursday. 

The local currency rose to 94.37 Australian cents from 94.10 cents yesterday, and increased to 4.4957 Chinese yuan from 4.4829 yuan. It decreased to 74.18 yen from 74.39 yen yesterday, and gained to 61.23 euro cents from 60.81 cents. The kiwi increased to 47.38 British pence from 47.18 pence. 

New Zealand's two-year swap rate was unchanged at 2.27 percent, and 10-year swaps fell three basis points to 2.84 percent.

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