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Looming RBNZ update keeps markets guessing

NZ NewswireNZ Newswire 15/07/2016 Paul McBeth
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The New Zealand dollar is heading for a 1.8 per cent weekly fall on a trade-weighted basis as traders second-guess what the Reserve Bank will say when it gives an updated view on the economy next Thursday, and ahead of Monday's inflation data.

The trade-weighted index fell to 76.13 from 77.54 last week, and is down from 76.81 on Thursday.

The Kiwi is heading for a 2.1 per cent weekly drop, trading at 71.54 US cents at 5pm from 73.04 cents on Friday in New York last week, and down from 72.04 cents on Thursday.

The Reserve Bank surprised investors when it said it will "issue a brief update on its economic assessment" on July 21 because of the longer gap between meetings in the bank's new timetable.

Traders are pricing in a 68 per cent chance governor Graeme Wheeler will cut the official cash rate a quarter-point to 2 per cent on August 11, having previously priced in a 40 per cent chance.

"People are expecting them to adjust their view and possibly increase the bets on a rate cut," said Mitchell McIntyre, senior corporate foreign exchange dealer at NZForex in Auckland.

"It's all speculation at this stage, but the Kiwi's taken a bit of a walloping."

Mr McIntyre said the Kiwi will probably find support between 71.20-and-71.50 US cents.

Government figures showed China's gross domestic product grew 6.7 per cent in the second quarter from a year earlier, beating expectations, and stoking demand for Australia's currency on the prospect the nation will benefit from China's robust growth.

The Kiwi dollar would typically follow suit, though Mr McIntyre said it was left behind because of the uncertainty posed by the RBNZ's looming review.

The Kiwi dropped to 93.70 Australian cents from 94.69 cents on THursday, and fell to 4.7803 Chinese yuan from 4.8181 yuan.

The local currency declined to 53.25 British pence from 54.56 pence yesterday and dropped to 64.27 euro cents from 64.88 cents. It rose to 75.73 yen from 75.42 yen.

New Zealand's two-year swap rate was unchanged at 2.18 per cent and 10-year swaps increased four basis points to 2.58 per cent.

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