Currency: Kiwi consolidates as London dust settles

The New Zealand dollar looks set for a period of consolidation this week as the dust settles on last week's bombings in London, and northern hemisphere traders ease into the summer holiday period.

At 5pm in Wellington, the kiwi was buying US67.55c against Friday's US67.08c close.

Westpac currency strategist Johnathan Bayley said the kiwi was entering a period of relative stability, after last week's battering when it lost three per cent.

"Going into this week there is a very good chance we will see some consolidation.

"The exchange rate market is by and large holding a long (US) dollar position and in the wake of last week's events in London and moving deeper into the northern hemisphere holiday season, the speculative market will be more inclined to take risk off the table, which will mean some short term (US) dollar weakness."

The US dollar fell against sterling in Tokyo trading today on views that buying of the currency on last week's bombings in London may have been overdone.

At 5pm in Wellington, the US dollar had slumped to 111.83 yen (112.31 at 5pm Friday), while the euro was at US$1.2011 (US$1.1935) and the aussie at US74.37c (US73.85c).

On the local scene, the market will be watching tomorrow's NZIER Quarterly Survey of Business Opinion (QSBO) and Thursday's inflation data.

Traders will be looking to see if the QSBO survey will show a further deterioration in business confidence while the consumer price index data is expected to show inflation close to the top of the Reserve Bank's 0-3 per cent target.

Westpac is forecasting an inflation figure of 3 per cent, against consensus forecasts of 2.8 per cent.

"Higher oil prices, increased petrol tax and the related increase you'll see in airfares will actually push that annual read up to 3 per cent, which is the target band ceiling," Mr Bayley said.

With the economy firmly on the downswing, economists doubt Reserve Bank Governor Alan Bollard will hike interest rates again at the next review on July 28.

But in the money market, Mr Bayley expects short term rates to firm in response to the inflation figure, along with a slight firming in the kiwi.

Mr Bayley expects the kiwi to range between US66.90c and US68.20c this week, and to firm slightly on the other crosses.

"As the market reduces its long dollar position this coming week you would, all else being equal, expect to see some modest kiwi outperformance on the crosses."

At 5pm, the kiwi was buying A90.83c (A90.85c), 0.5624 euro (0.5622), 38.75 British pence (38.51), 0.8754 Swiss francs (0.8718) and 75.55 yen (75.34).

The TWI was at 68.84 (68.62) and the monetary conditions index at plus 939 (923).

On the money markets, 90-day bank bill yields were unchanged at 7.04 per cent (7.04), July 2009 bond yields were at 5.91 per cent (5.87), and the April 2015s were at 5.80 per cent (5.76 per cent).

- NZPA