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NZ dollar drops on Brexit uncertainty

NZ NewswireNZ Newswire 26/06/2016 Paul McBeth

The New Zealand dollar fell to a 10-day low against the greenback after Britain voted to quit the European Union.

The outcome caught investors off-guard, stoking uncertainty in financial markets and raising the prospect that local interest rates will have to go lower.

The kiwi fell to 70.80 US cents at 8am in Wellington from 71.30 cents on Friday in New York. The trade-weighted index gained to 75.91 from 75.36 last week as investors fled the British pound and euro after UK referendum.

The result saw the Sterling drop about 8 per cent in a day and led to a sell-off in stock markets around the world as investors clamoured to the relative safety of the yen and US government bonds.

Markets had been betting the public would choose to stay.

"It's too early to judge that the worst is over - indeed it probably isn't over," said BNZ's Jason Wong.

"The political turmoil in the UK that has developed over the weekend and the months of uncertainty ahead suggest that a period of subdued risk appetite is likely to develop over coming weeks, which suggests more downside potential for risk assets and the NZD."

New Zealand swap rates tumbled on the vote as investors predict the Federal Reserve will delay its tightening cycle, meaning the Reserve Bank will be more likely to cut the official cash rate in August.

ANZ Bank New Zealand senior economist Philip Borkin said the 'Brexit' vote will also hit commodity prices and credit markets.

"There would obviously be growth implications from weaker commodity prices, tighter credit markets, and a strong NZD," Mr Borkin said. "Whatever the case, the odds of an August OCR cut have increased."

The local currency climbed to 52.44 British pence at 8am in Wellington from 52.11 pence on Friday in New York and gained to 64.30 euro cents from 64.12 cents.

It slipped to 95.29 Australian cents from 95.47 cents last week, dropped to 71.99 yen from 72.86 yen and fell to 4.6841 Chinese yuan from 4.7165 yuan last week.

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