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NZD rises with little prospect of rate cut

NZ Newswire logoNZ Newswire 16/09/2016 Jonathan Underhill

© Mark Tantrum/Getty Images The New Zealand dollar rose back above 73 US cents on speculation the Reserve Bank will hold off on cutting interest rates next week while the Federal Reserve is seen as unlikely to hike US rates, keeping the kiwi's yield advantage intact.

The kiwi rose to 73.06 US cents as at 5pm in Wellington, from 72.66 cents on Thursday. The trade-weighted index rose to 77.93 from 77.63.

RBNZ governor Graeme Wheeler is expected to hold fire from cutting interest rates on Sept. 22, preferring to wait for data that will show whether inflation is picking up before a possible cut at the Nov. 10 monetary policy statement.

Traders are currently pricing in an 8 per cent chance of a cut next week and a 70 per cent chance of a cut in November, according to ASB Bank.

The central bank is forecasting annual inflation slowed to just 0.2 per cent in the third quarter, while the TWI at close to 78 is well above the 76 average level it projected for the third quarter.

"The NZD has continued to appreciate since the August MPS and remains above the bank's TWI assumed levels, despite these being significantly revised upwards," said ASB economist Daniel Snowden.

While inflation pressures are likely to remain weak, "strong economic growth in the first half of 2016 and a nascent rebound in dairy prices are positives".

The kiwi has also benefited from weaker US economic data this week which has softened expectations the Federal Reserve will hike interest rates any time soon.

By contrast, figures this week showed the New Zealand economy grew 0.9 per cent in the second quarter, slower than the market's expectation of 1.1 per cent growth but faster than the central bank's 0.8 per cent forecast.

The local currency was little changed at 97.21 Australian cents from 97.27 cents on Thursday and gained to 4.87496 yuan from 4.8456 yuan. It gained to 65.02 euro cents from 64.59 cents and rose to 74.55 yen from 74.39 yen. The kiwi gained to 55.20 British pence from 54.81 pence after the Bank of England left its bank rate unchanged at 0.25 per cent.

New Zealand's two-year swap rate fell 2 basis points to 2.04 per cent and 10-year swaps fell 1 basis point to 2.59 per cent.

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