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Kiwi lifts on hawkish OCR predictions

NZ Newswire logoNZ Newswire 10/05/2017 Jonathan Underhill

The New Zealand dollar has risen ahead of the Reserve Bank's monetary policy statement, which is expected to see the official cash rate kept at 1.75 per cent but with an interest rate hike signalled sooner.

The kiwi advanced to US69.34 cents as at 8am on Thursday in Wellington from US69.01c late Wednesday. The trade-weighted index rose to 75.83 from 75.40.

Economists say that with inflation expectations on the rise and the consumers price index back within the central bank's target zone, RBNZ governor Graeme Wheeler will signal a rate hike as soon as next year.

At the February policy statement, Wheeler said rates could go either way in the future with the looming prospect of new trade barriers creating too many uncertainties for the central bank.

"We expect the RBNZ to keep the OCR on hold at 1.75 per cent but with a stronger signal that the next move will be up," said Westpac senior markets strategist Imre Speizer.

"It will need to acknowledge how conditions have changed in the last three months, with notable positives being the jump in inflation, drop in NZD TWI, and higher dairy prices. We expect the OCR projections to be shifted in a hawkish direction, implying a rate hike in late 2018 (compared to late 2019 in March's MPS)."

After the MPS at 9am on Thursday the market will get an early update on how inflation is tracking later in the morning with the release of the food price index for April. Food prices rose 0.3 per cent in March.

On Thursday morning, the kiwi rose to 94.18 Australian cents from A93.70c. It gained to 4.7873 yuan from 4.7627 yuan and rose to 79.20 yen from 78.51 yen. It increased to 63.81 euro cents from 63.35c and gained to 53.65 British pence from 53.28p.

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