The New Zealand dollar fell from near a 16-month high on a trade-weighted basis but is still seen as sufficiently above the levels projected by the Reserve Bank to warrant another cut to the official cash rate in coming months.

The kiwi traded at 73.01 US cents as at 8am in Wellington, from 73.35 US cents late yesterday. The trade-weighted index was at 77.71, from as high as 78.06 late yesterday, the highest since May last year.

The TWI is more than 2 percent above the average level the Reserve Bank projected for the third quarter in its monetary policy statement on Aug. 11 of 76, even though that forecast was revised up sharply from the 71.6 level in the June MPS. A strong currency has been keeping imported inflation at bay, giving the central bank a tougher job to return inflation to its targeted 1 percent-to-3 percent range. The consumers price index rose just 0.4 percent on an annual basis in the second quarter.

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"A resilient currency and continued low CPI readings are key reasons to expect the RBNZ to cut the OCR again by year-end," said Kymberly Martin, senior market strategist at Bank of New Zealand, in a note. "We expect a cut in November."


The kiwi may get a further boost from tonight's GlobalDairyTrade auction, which is expected to show another increase in milk powder prices. Ahead of the auction, traders will be watching for wholesale trade data today for the second quarter and the Reserve Bank of Australia's review of interest rates, which isn't expected to result in a change.

The New Zealand dollar fell to 96.27 Australian cents from 96.47 cents late yesterday. It declined to 75.54 yen from 75.79 yen and slipped to 4.8734 yuan from 4.8959 yuan. It fell to 65.51 euro cents from 65.63 cents and dropped to 54.87 British pence from 55.05 pence.