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NZ dollar heads for 0.9% weekly drop

NZ dollar heads for 0.9% weekly drop as inflation pushes out rate hike timeframe

By Paul McBeth

Oct. 24 (BusinessDesk) - The New Zealand dollar is heading for a 0.9 percent weekly decline against the greenback after an extended period of low inflation pushed out expectations for the Reserve Bank to resume hiking interest rates.

The kiwi fell to 78.37 US cents at 5pm in Wellington from 79.12 cents on Friday in New York last week. It was little changed from 78.18 cents at 8am today, and down from 78.52 cents yesterday. The trade-weighted index fell to 76.36 from 76.47 yesterday, and is heading for a 0.8 percent weekly decline from 76.96 last week.

A BusinessDesk survey of 11 traders and strategists on Monday predicted the kiwi would probably trade between 77.40 US cents and 81 cents this week. Seven expected the local currency to decline, while two picked it to rise and two said it would remain largely unchanged.

Analysts have delayed their expectations for the Reserve Bank to start hiking the official cash rate again, having previously seen governor Graeme Wheeler lifting the key rate in March. Government data yesterday showed the consumers price index slowed to an annual pace of 1 percent in the September quarter from 1.6 percent in the June period.

Wheeler has linked this year's interest rate hikes to preventing the threat of inflation, which typically accompanies housing and construction booms. Wheeler reviews the key rate next week, and is expected to keep the OCR at 3.5 percent.

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"Wheeler won't want rates to go too low so he'll just tweak the outlook" which could come in the form of conditions on future rate hikes, said Imre Speizer, senior market strategist at Westpac Banking Corp. "The kiwi/US still looks like fairly downtrodden, vulnerable to breaking below 78 on its way to 77 (US cents)."

Westpac's Speizer said Wheeler might also continue to talk the New Zealand dollar down, having already intervened in foreign exchange markets in August, with tradable inflation still weak despite the decline in the currency in recent months.

Government data today showed New Zealand's monthly trade deficit was almost twice as big as expected at $1.4 billion in September, though the surprising increase in imports was driven by a one-off purchase of an aircraft.

Traders are looking towards next week's Federal Open Market Committee meeting, the first since the US Federal Reserve ended its bond buying programme.

The local currency fell to 89.46 Australian cents at 5pm in Wellington from 89.67 cents yesterday, and rose to 84.62 yen from 84.28 yen. It dropped to 61.92 euro cents from 62.13 cents yesterday, and was little changed at 48.85 British pence from 48.92 pence.

(BusinessDesk)

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