NZ dollar gains

 The New Zealand dollar gained as weaker than expected US inflation prompted traders to reassess their expectations for faster interest rate hikes there.

The kiwi rose to 65.18 US cents as at 8am in Wellington from 64.75 cents yesterday. The trade-weighted index advanced to 71.21 from 70.95. 

The yield on US 10-year Treasuries fell 8 basis points to 3.15 percent as data showed US core inflation was steady at an annual pace of 2.2 percent. That supports the Fed's stance for a gradual increase in interest rates and may have disappointed some investors who anticipated a more aggressive approach.

The Fed's track for rates has been weighing on global equity markets and Wall Street was weaker for a second day, with the Dow Jones Industrial Average down 1.1 percent in late trading. Yesterday's 3.2 percent slide in the Dow prompted politicians to comment on the market, including President Donald Trump. He said the Fed was "out of control" and too aggressive in its monetary policy outlook. Still, Trump has no plans to sack chair Jerome Powell. 

Bank of New Zealand senior markets strategist said the gain in the kiwi was unusual given New Zealand's currency typically declines in 'risk-off' scenarios. However, those events also prompt traders to reduce their positions, he said. A long position is where an investor expects an asset to appreciate; a short position is where an investor sells an asset believing they will be able to buy it back at a cheaper price.

"Positioning in the NZD has been significantly short – the greatest on record according to CFTC data for non-commercial positions in the futures market – so NZD strength at a time like this suggests some short-covering," Wong said in a note. "Indeed, currency movements over the past 24 hours or so tells us a lot about positioning."

Local data today include the BNZ-Business NZ performance of manufacturing index. Manufacturers were the most pessimistic group in the New Zealand Institute of Economic Research's latest quarterly survey of business opinion, published last week. 

The kiwi increased to 91.73 Australian cents from 91.51 cents yesterday ahead of the Reserve Bank of Australia's financial stability review today. It traded at 4.4896 Chinese yuan from 4.4872 yuan and rose to 72.96 yen from 72.59 yen. The local currency increased to 49.26 British pence from 48.94 pence yesterday and rose to 56.22 euro cents from 55.97 cents. 

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