NZ dollar strengthens

new zealand dollar3The New Zealand dollar has edged up ahead of the Reserve Bank’s monetary policy statement which may include a stronger track for inflation and a weaker currency.

The kiwi rose to US69.20 cents as at 0800 on Thursday in Wellington from US68.97c late Wednesday. The trade-weighted index (TWI) increased to 73.45 from 73.30.

The Reserve Bank is expected to leave the official cash rate at a record low 1.75 per cent at 9am but its projections will have to account for a much weaker TWI and its implications for imported inflation, a rise in the price of crude oil and government policies that are likely to contribute to higher costs such as a rise in the minimum wage.

“It’s hard to see the bank disagreeing with a likely upward move in inflation unless it builds in a much weaker growth and housing market outlook,” said BNZ currency strategist Jason Wong.

“The bank is unlikely to sway from its view that policy can remain accommodative for a considerable period, but it might be willing to acknowledge that risks around the inflation dial have shifted towards the upside.”

The August monetary policy statement had the TWI averaging more than 77 through until the fourth quarter of 2018 and a quarter-point rate hike built in for March 2020. Through its forecasting window it doesn’t see annual inflation exceeding 2.1 per cent and on a quarterly basis, it doesn’t rise above 0.6 per cent.

On Thursday morning the kiwi rose to 4.5844 yuan from 4.5781 yuan and gained to 52.78 British pence from 52.37p. It rose to 59.71 euro cents from 59.47c and advanced to 78.75 yen from 78.47 yen. It traded at 90.14 Australian cents from A90.19c.

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