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NZ dollar heads for weekly fall

NZ NewswireNZ Newswire 22/07/2016 Jonathan Underhill
© Reuters

The New Zealand dollar is heading for a 1.5 per cent weekly decline against the greenback, reflecting the Reserve Bank's signal that it needs to cut interest rates to drive down the currency and stoke inflation.

The Kiwi traded at 70.03 US cents at 5pm, from 69.88 cents on Thursday and down from 71.09 cents a week ago.

The trade-weighted index was at 75.06, down from 76.01 a week ago.

Traders are pricing in an 89.6 per cent chance governor Graeme Wheeler will cut the official cash rate to 2 per cent with the monetary policy statement on August 11.

Still, the US Federal Reserve may be the wild card in the short term, with the Federal Open Market Committee due to meet next week and some members keen to see an increase in US interest rates this year, which would drive up the greenback.

"The impact of an RBNZ interest rate cut is largely priced in," said Chris Weston, chief market strategist at IG Markets.

"For me, it's a done deal. Why would they leave rates on hold, given everything they've said' The RBNZ has a great history of doing what they say they'll do."

Mr Weston said there's a "good chance" the RBNZ will cut again on November 10, the next MPS following the review in August.

Economists expect the Fed will keep its key rate unchanged within the range of 0.25 per cent to 0.5 per cent. But Mr Weston said a number of committee members "are pushing hard for them to raise rates this year."

The Fed is likely to signal it is keeping all options open and while Mr Weston says he thinks the US central bank should keep rates low for a long period of time, signs of stability in economic data and minimal impact from Brexit could see the greenback rally in expectation of rate increases, he said.

The Kiwi dropped to 74.10 yen from 74.84 on Thursday, when Bank of Japan governor Haruhiko Kuroda ruled out "helicopter money" - where a central bank buys perpetual bonds with no maturity date - as a means to stir inflation in the world's third-biggest economy.

The local currency rose to 63.54 euro cents from 63.34 cents and at 52.97 British pence, up from 52.80 pence.

The New Zealand dollar rose to 93.64 Australian cents from 93.30 cents and rose up to 4.6749 Chinese yuan from 4.6620 yuan.

The two-year swap rate rose about 2 basis points to 2.03 per cent and the 10-year swap rate fell about 1 basis point to 2.43 per cent.

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