BENHAR: The New Zealand dollar declined as the greenback strengthened on optimism the US economy will rebound after a weak first quarter, and as the kiwi is weighed down by expectations local interest rates will fall.
The kiwi slipped to 73.73 US cents at 8am in Wellington, from 74.33 cents at 5pm on Monday. The trade-weighted index dropped to 75.96 from 76.29.
The US dollar index gained after a report said the US economy is probably not as weak as current estimates suggest, bolstering the argument for raising US interest rates.
The New Zealand dollar remains weak ahead of the Reserve Bank’s second quarter survey of inflation expectations, which is expected to strengthen the case for local interest rate cuts.
Traders are pricing in a 48 per cent chance that the Reserve Bank will reduce interest rates at its June 11 meeting, according to the Overnight Index Swap curve.
Those bets may be further strengthened should inflation expectations continue to be muted in the Reserve Bank’s quarterly survey.
In the first quarter, firms pared back their two-year ahead expectations to an annual pace of 1.8 per cent from 2.06 per cent. The Reserve Bank targets inflation in a 1 per cent-to-3 per cent band.
