NZ Dollar Falls On RBNZ Dovish Signal

The New Zealand dollar weakened against other major currencies in the Asian session on Wednesday, as market spurred bets on early policy easing after the central bank viewed that inflation would return to target during the second half of this year.

The Reserve Bank of New Zealand maintained its benchmark rate as widely expected and softened its hawkish stance as inflation is forecast to return to the target range over the second half of the year. The Monetary Policy Committee of the Reserve Bank of New Zealand decided to hold the Official Cash Rate at 5.50 percent.

In other economic news, the data from the National Bureau of Statistics showed that China’s consumer prices increased less than expected in June and producer prices continued to decline. The consumer price index logged an annual increase of 0.2 percent in June, following a 0.3 percent gain in May. Prices were forecast to climb 0.4 percent.

On a monthly basis, consumer prices dropped 0.2 percent after easing 0.1 percent in May.

Core inflation that excludes prices of food and energy rose 0.6 percent annually, the same rate as seen in May.

Traders are digesting U.S. Fed Chair Jerome Powell’s testimony before the Senate Banking Committee. They also look ahead to the report on U.S. consumer price inflation in the month of June on Thursday for further clues on interest rates.

Powell told the committee that more good data would strengthen the central bank’s confidence inflation is moving sustainably toward its 2 percent target and lead to a potential interest rate cut. Powell said, “Reducing policy restraint too late or too little could unduly weaken economic activity and employment.”

In the Asian trading today, the NZ dollar fell to nearly a 1-1/2-year low of 1.1092 against the Australian dollar, and nearly a 2-month low of 1.7801 against the euro from yesterday’s closing quotes of 1.1000 and 1.7646, respectively. If the kiwi extends its downtrend, it is likely to find support around 1.11 against the aussie and 1.81 against the euro.

Against the U.S. dollar, the kiwi slid to a 1-week low of 0.6075 from Tuesday’s closing value of 0.6123. The NZD/USD pair test support near the 0.59 region.

The kiwi dropped to a 5-day low of 98.13 against the yen, from an early 2-day high of 99.04. On the downside, 95.00 is seen as the next support level for the kiwi.

Looking ahead, U.S. MBA mortgage approvals data, U.S. wholesale inventories data for May and U.S. EIA weekly crude oil data are due to be released in the New York session.

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