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Kiwi gives up gains after RBNZ speech

NZ NewswireNZ Newswire 23/08/2016

The New Zealand dollar has given up some of its gains, dipping below US73 cents, after Reserve Bank governor Graeme Wheeler backed his interest rate path as erring on the side of caution.

The kiwi slipped to US72.91c on Wednesday from US73.16c on Tuesday, still up from US72.68c before Mr Wheeler's speech.

The trade-weighted index was little changed at 77.24 from 77.38, still above the RBNZ's projection for the TWI to average 76 this quarter.

The local currency rose as high as US73.44c after the Reserve Bank reiterated expectations for 35 basis points of further cuts to the official cash rate, but pushed back against critics calling for either a pause or more aggressive action.

The speech, delivered by assistant governor John McDermott, said a lower rate was needed to prevent weak low inflation expectations from bedding in, but to go faster would risk promoting instability in the financial system.

The kiwi's gains "looked to be an over-reaction given the speech specifically stated it was a reiteration of themes from the recent MPS (monetary policy statement)," BNZ market strategist Kymberly Martin said in a note.

"If the NZD/USD was to successfully break through last night's resistance it would take the currency to its highest level since May 2015."

Local data on Wednesday includes July merchandise trade data at 10.45am and mortgage lending figures at 3pm.

In the morning, the kiwi was little changed at 95.68 Australian cents from A95.71c on Tuesday and fell to 4.8396 Chinese yuan from 4.8668 yuan.

It traded at 64.48 euro cents from 64.57c and declined to 55.26 British pence from 55.64p. It decreased to 73.06 yen from 73.29 yen.

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