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Kiwi dips as traders eye rate cut

NZ NewswireNZ Newswire 14/07/2016
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The New Zealand dollar has dropped after the Reserve Bank raised expectations it may be poised to cut rates next month.

The kiwi fell to US72.04 cents at 5pm on Thursday in Wellington from US72.68c at 8am and US72.58c on Wednesday. The trade-weighted index dropped to 76.81 from 77.44.

Traders are now pricing in a 60 per cent chance of an interest rate cut at next month's monetary policy review after the RBNZ said it will "issue a brief update on its economic assessment" on July 21 because of the longer gap between meetings in the bank's new timetable.

Before the announcement, traders had priced in a 40 per cent chance the official cash rate will be cut in August.

"The markets have looked at this and gone 'maybe they're going to indicate a pending rate cut in August'," said Stuart Ive, senior dealer foreign exchange at OMF.

"The kiwi has gone from its resistance level at 73 US cents to its support level."

The update would give the RBNZ a chance to see the June inflation figures, and he was wary of rushing to form a view on what it might contain, saying the market was "hyped up" ahead of deputy governor Grant Spencer's speech on housing and macro-prudential tools last week.

New Zealand's two-year swap rate decreased two basis points to 2.18 per cent, and 10-year swaps fell three basis points to 2.54 per cent.

The kiwi dollar reached 14-month highs against the greenback and on a trade-weighted basis earlier this week, and Deutsche Bank New Zealand chief economist Darren Gibbs said the Reserve Bank may move to lean against the currency.

On Thursday, the kiwi fell to a week low 94.69 Australian cents from A95.41c on Wednesday after Australian employment figures showed a big increase in full-time jobs last month.

It dropped to 75.42 yen from 75.59 yen and declined to 4.8181 Chinese yuan from 4.8518 yuan. It was little changed at 54.56 British pence from 54.52p and fell to 64.88 euro cents from 65.61c.

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