NZ dollar trades near 5-month high as weak US data erodes prospects of further rate hike

The kiwi traded at 73.42 US cents as at 8am in Wellington, from 73.45 cents in late New York trading on Friday.

The New Zealand dollar traded near a five-month high after weak US inflation, retail sales and consumer sentiment figures stoked talk the Federal Reserve may not raise interest rates for the third time this year.

The kiwi traded at 73.42 US cents as at 8am in Wellington, from 73.45 cents in late New York trading on Friday and 73.16 cents in Asia at the end of last week. The trade-weighted index was little changed at 78.11.

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US consumer price index inflation was flat in June against expectations of a 0.1 per cent increase, while the annual rate at 1.6 per cent came in below consensus of 1.7 per cent. Retail sales unexpected fell 0.2 per cent in June while the University of Michigan consumer sentiment survey missed expectations at 93.1 versus 95 forecast by economists. The prospects of a hike to the fed funds rate in December is currently sitting at 45 per cent even though the Fed's guidance is for a third hike this year.

"A lack of inflation and an unexpected fall in retail sales has raised question marks over whether the Fed will be in a position to hike rates and reduce its balance sheet later this year," traders at HiFX said in a note.

Locally, traders are awaiting second-quarter inflation figures tomorrow, with expectations that annual inflation eased back below 2 per cent in the face of weak fuel prices, boosting expectations the Reserve Bank will stick to its guns and refrain from raising interest rates anytime soon. A quarterly inflation rate of 0.2 per cent is expected for an annual rate of 1.9 per cent.

The kiwi slipped to 63.97 euro cents from 64.06 cents in New York on Friday and traded at 82.56 yen from 82.67 yen. It fell to 4.9729 yuan from 4.9756 yuan and traded at 55.99 British pence from 56.11 pence. The kiwi traded at 93.78 Australian cents from 93.75 cents.