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NZ dollar edges up ahead of local business confidence, inflation

The New Zealand dollar edged up ahead of business confidence and inflation figures in coming days, as investors gauge the strength of local economy in the lead-up to Thursday's European Central Bank meeting, which is likely to unveil a major money printing programme.

The kiwi closed at 77.91 US cents at 5pm in Wellington from 77.64 cents at 8am and 77.88 cents on Friday in New York. The trade-weighted index was at 79.40 from 79.35 last week.

The New Zealand Institute of Economic Research releases its quarterly survey of business opinion tomorrow and Statistics New Zealand publishes the December quarter consumers price index on Wednesday - two pieces of data relied on by the Reserve Bank when setting monetary policy. Falling oil prices and the prospect of deflation creeping into the global economy has pushed out expectations for the next round of rate hikes in New Zealand, which would widen the yield advantage the kiwi dollar offers investors over other currencies. Traders have priced in four basis points of increases in the official cash rate over the coming 12 months, according to the Overnight Index Swap curve.

"We're expecting to print at or around zero and the risks are we go through it, given where global inflation has been going," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "The kiwi's waiting a little bit for QSBO tomorrow, but more so for CPI on Wednesday."

Chinese data tomorrow, including fourth quarter gross domestic product and December industrial production, retail sales and fixed asset investment totals will also be watched, with China a major export destination for New Zealand and Australia. The kiwi rose to 4.8444 Chinese yuan at 5pm in Wellington from 4.8336 yuan on Friday in New York.

The main event risk this week comes from the ECB policy meeting on Thursday in Brussels, where investors are expecting president Mario Draghi will unveil a quantitative easing programme to help spur the regional economy. The kiwi rose to a record high 67.63 euro cents last week, and traded at 67.39 cents at 5pm in Wellington from 67.25 cents on Friday in New York.

The Swiss National Bank's surprise move on Thursday to remove its currency intervention cap was interpreted as indicating the SNB anticipates a major QE programme, and caused the Swiss franc to soar against the euro.

ANZ's Tuck said there will probably be more traders changing their positioning as a result of the Swiss move with investors likely to reduce their risk profile.

Other central banks meeting this week include the Bank of Japan and Bank of Canada.

The local currency fell to 91.26 yen at 5pm in Wellington from 91.59 yen on Friday in New York, and gained to 94.91 Australian cents from 94.62 cents. It was little changed at 51.46 British pence from 51.40 pence last week.

The two-year swap rate rose to 3.74 from 3.69 at 5pm in Wellington last Friday, and the 10-year swap rate advanced to 3.7875 from 3.7575 last week.