The New Zealand dollar was sharply lower but off its lows as positive economic data from China and euphoria over the government's decision to can a capital gains tax helped cushion the impact of a weaker than expected inflation print.

The kiwi was trading at 67.30 at 5pm in Wellington, off the day's low at 66.95 and compared with 67.60 at 8am, while the trade-weighted index sank to 72.85 points from 73.21.

The Consumers Price Index for the March quarter came in at 0.1 per cent, below market expectations of about 0.3 per cent and the Reserve Bank's 0.2 per cent forecast. That took the annual inflation rate to 1.5 per cent, below the central bank's 2 per cent target.

"The big news was the CPI miss," says Mike Shirley, foreign exchange dealer at Kiwibank.

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"Just as the CGT announcement came out, we also had a raft of fairly positive Chinese releases."

Prime Minister Jacinda Ardern said the public has spoken and she won't introduce a capital gains tax while she leads the Labour Party.

The data from China showed its economy grew at a 6.4 per cent annual pace in the March quarter, above expectations for a 6.3 per cent growth rate.

As well, industrial production in China jumped 8.5 per cent in the month of May while retail sales grew by 8.4 per cent, both of those measures also well above expectations.

Such strong figures suggest that stimulatory measures the Chinese government has implemented are beginning to take effect.

Shirley says a Reserve Bank measure of underlying inflation came in at 1.7 per cent in the March quarter, unchanged from the December quarter, also tempering the impact of the weak CPI print.

"It's not a significant driver, but it muddies the waters a bit and may explain why the kiwi is holding up above the 67.20 level," he says.

Nevertheless, Kiwibank's economists are now predicting the Reserve Bank will cut its official cash rate from its present record low at 1.75 per cent to 1.5 per cent in May.

Certainly, the wholesale interest rate market reaction suggests the market is veering back towards that expectation after seeming to shrug off the possibility of an OCR cut so soon, in recent days.

The New Zealand two-year swap rate fell to 1.6389 per cent from 1.7061 yesterday, but remains above its record low at 1.5475 on March 28, the day after the Reserve Bank changed its stance from neutral to expecting the next move in the OCR would probably be down.

The 10-year swap rate sank to 2.2550 per cent from 2.2950.

The New Zealand dollar was trading at 93.59 Australian cents versus 94.23, at 51.52 British pence from 51.80, at 59.53 euro cents from 59.88, at 75.36 Japanese yen from 75.69 and at 4.5121 Chinese yuan from 4.5348.