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The New Zealand dollar edged up as local trading resumed after the Easter holiday, with investors eyeing Thursday's monetary policy review when interest rates are expected to be hiked for a second time in as many months.
The kiwi increased to 85.79 US cents at 5pm in Wellington from 85.59 cents at 8am and 85.65 cents in Asian trading yesterday. The trade-weighted index was little changed at 79.76 from 79.85 yesterday.
Traders have priced in a 97 percent chance for a rate hike by Reserve Bank on Thursday, according to the overnight index swap curve, as governor Graeme Wheeler looks to head off the threat of future inflation. Slower than expected inflation in the first quarter and falling dairy prices has prompted some investors to question whether Wheeler will hike as aggressively as previously signalled, and will be monitoring this week's review for any insight into the central bank's thinking.
"I expect them to continue on the track for the time being" until the central bank sees more weakness in future inflation figures, said Stuart Ive, senior client adviser at OMF in Wellington. "The kiwi came off on Monday a little bit and has come under pressure after the CPI (consumers price index) figures came in below expectations."
OMF's Ive said the local currency is at elevated levels, and is retracing recent gains rather than on a new downtrend.
Preliminary Chinese, US and European manufacturing figures will likely set the tone for investors ahead of the Reserve Bank's policy review, and OMF's Ive said upbeat data would stoke appetite for risk-sensitive assets, such as the kiwi.
The kiwi will probably trade between 85.65 US cents and 86 cents during Northern Hemisphere trading, Ive said.
The local currency slipped to 91.71 Australian cents at 5pm in Wellington from 91.83 cents yesterday, and increased to 88.03 yen from 87.85 yen. It gained to 62.17 euro cents from 61.98 cents yesterday, and was little changed at 51.07 British pence from 50.97 pence.