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Kiwi drops back from OCR bounce

NZ NewswireNZ Newswire 11/08/2016

The New Zealand dollar has fallen back to where it was before the interest rate cut.

The kiwi dropped to US72.10 cents at 8am on Friday in Wellington from US72.60c at 5pm on Thursday, trading near the US72.02c level it was at immediately before Thursday morning's rate cut.

The trade-weighted index declined to 76.31 from 76.83.

The local currency gave up Thursday's gains when it shot to a 15-month high when RBNZ governor Graeme Wheeler lowered the official cash rate a quarter-point to 2 per cent, disappointing some traders who had been expecting a bigger move.

Mr Wheeler acknowledged that he had very little control over currency markets, but was trying to bring down the kiwi dollar which has made it difficult for him to meet his inflation target by making imports cheaper.

"In a world of ultra-stimulatory central bank policies pulling global yields lower, there is almost insurmountable pressure for local policy to fall too, else risk an even stronger currency and weaker tradable inflation," ANZ senior economist Philip Borkin said in a note.

"The RBNZ is in the process of narrowing yield differentials. But the NZD is strong for reasons other than yield and will require a substantially stronger USD (which was stronger overnight) for a sustained move lower."

Government figures on Friday are expected to show retail sales rose 0.9 per cent in the June quarter, continuing the country's patch of strong consumption, while a manufacturing gauge will likely show that sector in good heart.

On Friday morning, the kiwi fell to 93.58 Australian cents from A94.30c on Thursday and dropped to 4.7777 Chinese yuan from 4.8209 yuan. It declined to 73.44 yen from 73.62 yen and was little changed at 55.65 British pence from 55.79p. The local currency decreased to 64.73 euro cents from 65c.

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