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Kiwi bounces from three-week low

NZ NewswireNZ Newswire 18/07/2016 Paul McBeth

The New Zealand dollar has bounced from near a three-week low as investors weigh up whether the Reserve Bank will try to jawbone a persistently strong currency lower and indicate an interest rate cut is likely next month.

The kiwi increased to US71.12 cents at 8am on Tuesday, from US70.93c on Monday. The trade-weighted index rose to 75.98 from 75.74.

The local currency dropped to its lowest since June 30 on Monday after weaker-than-expected inflation heightened expectations the Reserve Bank will put more focus on the strong kiwi, which has traded above the bank's projections since last month's monetary policy statement.

A strong currency was cited as an alternate scenario to the bank's central view, and would warrant a reduction in the 2.25 per cent official cash rate. Traders have priced in an 80 per cent chance the OCR will be lowered, up from about 40 per cent before the RBNZ said it would give an economic update on July 21.

"NZD has been well bid on dips, and the onus is now on the RBNZ to deliver a clear message on Thursday," ANZ senior rates strategist David Croy said in a note.

"Any hint of wavering will be seized on, with New Zealand's relatively high interest rates a clear factor in NZD strength."

No local data is scheduled for release on Tuesday, with Fonterra GlobalDairyTrade auction on Wednesday morning (NZT) in the US the next major event ahead of the RBNZ update.

On Tuesday morning, the local currency rose to 93.59 Australian cents from A93.35c on Monday.

The kiwi gained to 75.47 yen from 74.80 yen and advanced to 4.7680 Chinese yuan from 4.7488 yuan. It was little changed at 53.66 British pence from 53.57p and traded at 64.24 euro cents from 64.08c.

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