NZ dollar heading to a weekly 0.8% decline, eyes on US CPI data

Friday 14th July 2017

The New Zealand dollar held onto its overnight gains but was headed for a 0.8 percent weekly decline as investors await several US economic indicators, including inflation numbers.

The New Zealand dollar was trading at 73.16 US cents as at 5 pm from 72.84 cents late yesterday but was weaker versus last Friday in New York when it traded at 73.80.

The kiwi was battered early in the week by disappointing domestic data but gained sharply toward the end of the week amid speculation the Reserve Bank may be more inclined to hike interest rates in the face of increases and bullish talk from other central banks including the Bank of Canada. It is also benefiting from US dollar weakness as signs the Federal Reserve will pursue only a gradual rate tightening path weigh on the greenback after Senate testimony from Federal Reserve chair Janet Yellen.

Looking ahead, investors are awaiting a host of U.S. economic indicators, including core inflation, retail sales and industrial production for June later in the session for more insight into how the Fed might proceed.

The CPI, in particular, will garner interest because "if you take Yellen at her word the Fed is starting to second guess itself as to whether recent weakness is transitory," said ANZ Bank New Zealand senior economist Phil Borkin.

The next key risk will be domestic inflation for next week, he said. "Petrol is weighing on inflation numbers around the world and that's the case for New Zealand too so it's really what the details show," he said. Economists are expecting a quarterly rise of 0.2 percent for annual inflation to be running at 1.9 percent.

Borkin said if the numbers show an "inching higher" from an underlying and core perspective the market will be happy to continue to price in hikes and keep the NZD supported but "if its weaker across the board, you'll see the kiwi follow suit," he said. Interest rate markets are now tipping the first rate hike to come in June 2018 versus the central bank's forecast of September 2019.

The trade-weighted index rose to 78.18 from 77.91 late yesterday. It rose to 64.13 euro cents from 63.69 cents late yesterday and to 82.97 yen from 82.36 yen. It gained to4.9609 yuan from 4.9385 yuan and traded at 56.48 British pence from 56.47 pence. The kiwi traded at 94.50 Australian cents from 94.62 cents.

New Zealand's two-year swap rate rose 1 basis point to 2.26 while the 10-year swaps rose 3 basis points to 3.35 percent.

(BusinessDesk)

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