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NZ dollar dips after Reserve Bank surprise

NZ NewswireNZ Newswire 14/07/2016 Paul McBeth

The New Zealand dollar continued its decline on a trade-weighted basis after the Reserve Bank surprised traders saying it would give an updated assessment of the economy next week.

The trade-weighted index fell to 76.62 at 8am in Wellington from 76.81 on Thursday and 77.57 before the RBNZ notice which stoked expectations it's laying the groundwork for a rate cut next month.

The kiwi was little changed at 71.98 US cents from 72.04 cents.

Traders are pricing in a 69 per cent chance the Reserve Bank will cut the official cash rate to 2 per cent at its next policy review on August 11 after the bank said it will "issue a brief update on its economic assessment" next week. Before the notice traders had priced in a 40 per cent chance of a cut.

The kiwi dollar has been trading above the RBNZ's projections as interest rates here offer better returns than elsewhere, while its outlook for economic growth and stable government are seen as a boon in a volatile global environment.

"The natural conclusion the market took was that the bank was not happy with current market conditions," BNZ's Jason Wong said.

"The weaker NZD is expected to be sustained heading into next week's highly anticipated statement and, if the bank has learnt anything from previous communication missteps, then it should be able to deliver a further blow to the NZD."

The kiwi fell to a two-week low 53.95 British pence from 54.56 pence after the Bank of England kept its benchmark rate unchanged at 0.5 per cent, surprising markets which had been expecting a cut.

The local currency rose to 75.86 yen from 75.42 yen, edged down to 64.71 euro cents from 64.88 cents, fell to 4.8083 Chinese yuan and eased to 94.20 Australian cents from 94.69 cents.

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