The New Zealand dollar unwound most of yesterday's gain from faster-than-expected inflation as Dallas Federal Reserve president Robert Kaplan affirmed his view that the world's biggest central bank will lift rates another two times this year, stoking demand for the greenback.
The kiwi fell to 70.12 US cents as at 8am in Wellington from 70.37 cents yesterday. The trade-weighted index declined to 76.17 from 76.47 yesterday.
The local currency jumped about a third of a US cent yesterday after local data showed the consumer prices index rose at a faster pace than anticipated, raising the prospect the Reserve Bank may have to hike interest rates earlier than expected. However, that rally was short-lived as comments from the Fed's Kaplan that three rate hikes this year was a "good baseline" and could be adjusted depending on the economic data added to the view that the US central bank was on track to deliver higher interest rates.
"The kiwi is back on the back foot, and only a few pips above where it was pre-CPI yesterday, thanks to USD strength overnight," ANZ Bank New Zealand senior rates strategist David Croy said in a note. "
It's difficult to argue that the kiwi should be stronger given that we expect growth to tail off this year, and as the US economy builds momentum and policy there normalises, but equally, it's difficult to be bearish given New Zealand's respectable credentials."
