Kiwi rises above 73 USc amid rate hike talk, stronger China trade data

The New Zealand dollar rose 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, while stronger Chinese trade data helped lift sentiment for the kiwi.

The local currency rose to 73.15 US cents as at 8am in Wellington and earlier touched 73.68 cents, a level it hasn't exceeded since early November, from 72.84 cents late yesterday. The trade-weighted index rose to 78.22 from 77.91.

The market is digesting the second day of Senate testimony from Federal Reserve chair Janet Yellen, which broadly reiterated the expectation for a moderate pace of rate increases while adding that it would be "quite challenging" for the US to meet President Donald Trump's target of boosting annual economic growth to 3 percent. Meanwhile, China reported June exports of US$17.2 billion, beating the market forecast of US$14.5 billion, while posting a trade surplus close to expectations at US$42.8 billion.

"While some from offshore have speculated that the RBNZ will join in the chorus of central banks changing their bias and indicating removal of policy accommodation, we don't believe that will happen anytime soon," said Jason Wong, currency strategist at Bank of New Zealand, in a note. "If anything, inflation is tracking below the RBNZ's May projections, and next week's CPI data should confirm that."

Westpac Banking Corp economists expect inflation slowed to just 0.1 percent in the second quarter, after a 1 percent spike in the first quarter, slowing the annual rate to 1.8 percent. That would be lower than the Reserve Bank's latest forecasts of 0.3 percent and 2.1 percent respectively.

"We expect the OCR to remain unchanged until 2019, in contrast to market expectations of a rate hike by mid-2018," said Michael Gordon, Westpac's acting chief economist, in a note.

Locally, the manufacturing PMI for June is due out today and on Friday in the US, investors will be watching for the June consumers price index and retail sales. US CPI is forecast to rise 0.1 percent month on month, after falling 0.1 percent a month earlier.

The kiwi fell to 64.23 euro cents from 63.69 cents late yesterday and rose to 82.92 yen from 82.36 yen. It gained to 4.9661 yuan from 4.9385 yuan and traded at 56.56 British pence from 56.47 pence. The kiwi traded at 94.71 Australian cents from 94.62 cents.

(BusinessDesk)