Kiwi at three-week low as Reserve Bank picked to sit on its hands

The New Zealand dollar fell to a three-week low as traders took yesterday's weaker inflation reading from the Reserve Bank's survey of expectations as evidence the bank will lag behind its global peers in hiking interest rates, reducing the kiwi's appeal.

The kiwi dollar traded at 73.54 US cents as at 8am in Wellington from 73.99 cents late yesterday. The trade-weighted index fell to 77.56 from 77.93.

The New Zealand dollar has fallen 2.7 percent from its recent high on July 27, when it touched its highest level in more than two years. Traders have reduced their bets that the local currency could push higher because the RBNZ's monetary policy statement on Thursday is expected to project little increase, if any, in interest rates in coming years as the economy continues to grow without fuelling inflation.

"The fall likely reflects traders reducing (extreme) net long positions ahead of the MPS, which isn't expected to be supportive to the NZD, with inflation tracking lower than the RBNZ projected back in May," Jason Wong, currency strategist at Bank of New Zealand, said in a note. "We suspect further downside lies ahead, with that view possibly supported by a well-overdue recovery in the USD after months of broadly-based weakness. It would help if US CPI data on Friday can break the run of negative surprises, following hot on the heels of last week's strong employment report."

The US economy added 209,000 jobs in July, beating estimates of a 180,000 gain, although wage inflation remained subdued, stoking interest in US inflation data to be released at the end of the week. In New Zealand, the central bank is likely to have taken note of its survey of expectations yesterday, which showed respondents see annual inflation at 1.77 percent in one year, down from 1.92 percent rate in the prior survey three months ago. In two years it is seen at 2.09 percent, down from 2.17 percent.

The kiwi fell to 92.94 Australian cents from 93.20 cents late yesterday. It declined to 56.43 British pence from 56.65 pence and was at 4.9451 yuan from 4.9740 yuan. It dipped to 62.35 euro cents from 62.72 cents and fell to 81.44 yen from 81.90 yen.

(BusinessDesk)