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Kiwi falls as OCR cut expected

NZ NewswireNZ Newswire 21/04/2016 Tina Morrison

The New Zealand dollar has fallen as traders price in the chance that the Reserve Bank may cut interest rates at its meeting next week in an attempt to bolster lacklustre inflation and weaken the currency.

The kiwi slid to US69.09 cents at 8am on Friday in Wellington, from US69.73c at 5pm on Thursday. The trade-weighted index declined to 72.76 from 73.19.

Traders are pricing in a 46 per cent chance that Reserve Bank governor Graeme Wheeler will cut the official cash rate to 2 per cent at the April 28 review while the odds of the OCR being unchanged are 54 per cent, based on the overnight interest swap curve.

"There are increased expectations that the Reserve Bank may do something, if not next week then at least a couple more times this year," said BNZ currency strategist Jason Wong.

BNZ expects the Reserve Bank to cut next week.

"People seem to be jumping back in again on the view that because the currency is way up here that it may increase the chance of the Reserve Bank going as soon as next week.

"In the short term there is more downside risk than upside risk" for the kiwi, he said.

Mr Wong said he saw the kiwi's fair value at around US65c to US66c, saying it has been swept up by a general rise in commodity prices, which is mostly related to metals which New Zealand doesn't sell.

Commodity-linked currencies were generally weaker overnight as the CRB Index, which measures a basket of global commodities, declined.

On Friday morning, the New Zealand dollar slid to 89.24 Australian cents from A89.32c on Thursday, fell to 61.20 euro cents from 61.74c, dropped to 48.21 British pence from 48.63p, declined to 75.62 yen from 76.48 yen and sank to 4.4777 yuan from 4.5161 yuan.

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