NZ dollar bounces back after digesting weak Australian inflation data

The kiwi was trading at 66.43 US cents at 5pm.

The New Zealand dollar rose, mainly reflecting a retracement against the Australian dollar following weaker-than-expected Australian inflation data on Wednesday.

The kiwi was trading at 66.43 US cents at 5pm in Wellington from 66.21 at 8am and rose to 94.56 Australian cents from 94.42. The trade-weighted index rose to 72.56 points from 72.39.

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"It's just the market digesting those inflation numbers and re-evaluating the balance. The pressure's on the Reserve Bank of Australia to cut rates, or more so than before," says Mitchell McIntyre, a dealer at XE.

Australia's headline inflation rate came in flat for the March quarter against expectations of a 0.2 per cent increase, according to a Bloomberg survey. The annual rate of 1.3 per cent was the weakest since the third quarter of 2016.

"The kiwi has done better in the short-term – the kiwi/Aussie had been sold off very aggressively and was due for a retracement," McIntyre says.

Earlier this month, New Zealand inflation figures for the March quarter also missed expectations, raising the likelihood our central bank will also cut interest rates in May.

"But both the kiwi and the Aussie are definitely well and truly in a downtrend and that's likely to continue," McIntyre says. The kiwi is just "taking a breath in a downtrend. I wouldn't expect it to go too much higher – it's going to run into trouble between here and 67" US cents, he says.

The New Zealand dollar was trading at 51.49 British pence from 51.35, at 59.65 euro cents from 59.47, at 74.18 Japanese yen from 73.92 and at 4.4741 Chinese yuan from 4.4637.

The New Zealand two-year swap rate rose to 1.6312 per cent from 1.6002 on Wednesday – New Zealand and Australian financial markets were closed on Thursday for the Anzac Day holiday. The 10-year swap rate climbed to 2.1950 per cent from 2.1775.