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NZ dollar gains as Brexit volatility eases

NZ NewswireNZ Newswire 29/06/2016 Paul McBeth

The New Zealand dollar gained as the extreme level of volatility in financial markets since last week's British vote to quit the European Union eased a little, though the prospect of another rate cut could ensure any rally is short-lived.

The kiwi increased to 70.75 US cents at 5pm in Wellington from 70.39 cents at 8am, and 70.44 cents on Tuesday. The trade-weighted index rose to 75.90 from 75.70.

Stocks across Asia gained as investors recover from last week's shock 'Brexit' vote and nervousness about what that might mean for financial markets eases, boosting demand for risk-sensitive assets such as the kiwi.

The Chicago Board Options Exchange's Volatility Index, known as Wall Street's 'fear gauge', dropped 21 per cent to 18.75 on Tuesday, indicating volatility in markets has eased.

Demand for New Zealand's currency probably won't last long with an interest rate cut next month likely to follow the turmoil stoked by the British referendum.

"The extreme volatility and shock of exiting has run its course, but's we're still going to see heightened levels of volatility," said HiFX's Michael Johnston. "That's going to limit how far the kiwi can rally in the near term."

The kiwi rose to a new three-year high against the British pound, trading at 53.09 pence from 52.98 pence.

In its statement of intent for 2016-2019, the Reserve Bank reiterated that more cuts to the 2.25 per cent official cash rate may be needed.

Mr Johnston said if the RBNZ is confident it can implement new tools to take the steam out of the housing market and if July data shows inflation is still benign, governor Graeme Wheeler will cut rates at its next meeting in August.

The local currency rose to 95.53 Australian cents from 95.34 cents and climbed to 4.7081 Chinese yuan from 4.6824 yuan. It increased to 63.96 euro cents from 63.67 cents and gained to 72.45 yen from 71.83 yen.

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