NZ dollar headed for weekly gain

The New Zealand dollar is headed for a 1.2 per cent weekly gain.

The New Zealand dollar is headed for a 1.2 per cent weekly gain after the greenback fell on declining US yields and further losses on Wall Street.

The kiwi traded at 65.19 US cents at 5pm in Wellington from 65.18 US cents at 8am in Wellington and 64.75 cents yesterday. It traded at 64.41 US cents last Friday in New York. The trade-weighted index advanced to 71.16 from 70.95.

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It benefited from US dollar weakness after equity markets took a tumble and the yield on US 10-year Treasuries fell to around 3.15 per cent, down from 3.26 per cent earlier this week. Overnight data that showed US core inflation was steady at an annual pace of 2.2 per cent also weighed on the greenback as it pointed to further gradual, rather than aggressive, rate rises.

But the kiwi's gains may be short-lived.

Martin Rudings, senior dealer foreign exchange at OMF, said the US Federal Reserve is still lifting rates so "the return of US dollar strength is just around the corner." He said the kiwi was likely to run into strong selling around 65.40 US cents.

Next week's domestic inflation data will be closely watched. Even if the number is higher than the central bank is expecting it is unlikely to change things as any lift will be largely driven by fuel. The Reserve Bank has previously said it will look through that volatility.

The consumers price index probably rose 0.7 per cent in the three months ended September 30, for an annual increase of 1.7 per cent, according to the median in a poll of 14 economists surveyed by Bloomberg. The central bank expects 0.4 per cent, and an annual rise of 1.4 per cent.

Even if the inflation number is strong "the market would be foolish to take that as a massive sign to buy kiwi as the RBNZ is going to look through fuel," Rudings said.

The kiwi was at 91.44 Australian cents from 91.51 cents yesterday. It traded at 4.4976 Chinese yuan from 4.4872 yuan and rose to 73.25 yen from 72.59 yen. The local currency increased to 49.25 British pence from 48.94 pence yesterday and rose to 56.19 euro cents from 55.97 cents.

New Zealand's two-year rate was unchanged at 2.01 per cent while 10-year swaps rose 3 basis points to 2.92 per cent.