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NZ dollar little changed ahead of Australian CPI data

The New Zealand dollar was little changed ahead of Australian inflation data due tomorrow, a key indicator to whether the Reserve Bank of Australia will cut interest rates.

The kiwi was trading at 66.71 US cents at 5pm in Wellington from 66.75 at 8am while the trade-weighted index was at 72.42 points from 72.44.

"The Australian CPI tomorrow is the main thing the market's concentrating on," says Tim Kelleher, head of institutional foreign exchange sales at ASB Bank.

Given that New Zealand's CPI last week was weaker than expected and that the two economies are similar, "the chances of it being stronger than forecast is difficult – that's what the market's thinking," Kelleher says.

ANZ Bank is predicting that if Australia's core inflation rate in the March quarter comes in at 0.3 percent or below, "a rate cut in May is a real possibility."

New Zealand's CPI for the March quarter came in at 0.1 per cent, below market expectations of about 0.3 per cent and the Reserve Bank's 0.2 per cent forecast. That took the annual inflation rate to 1.5 per cent, below the central bank's 2 per cent target.

That's led some economists to expect an RBNZ rate cut in May.

Despite the post-Easter, pre-ANZAC Day holiday torpor, "there's been some reasonable flows today but the market hasn't really moved," Kelleher says.

The New Zealand dollar was trading at 93.61 Australian cents from 93.57, at 51.36 British pence from 51.43, unchanged at 59.29 euro cents, at 74.62 Japanese yen from 74.72 and at 4.4777 Chinese yuan from 4.4804.

The New Zealand two-year swap rate rose to 1.6439 per cent from 1.6432 on Thursday while the 10-year swap rate sank to 2.2300 per cent from 2.2475.

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