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NZD dips after RBA holds off rates hike

NZN 7/06/2016 Jonathan Underhill

The New Zealand dollar fell against the Australian dollar after the Reserve Bank of Australia kept its cash rate unchanged, disappointing traders who had bet on a more dovish central bank.

The kiwi dollar fell to 93.32 Australian cents as at 5pm in Wellington from 93.74 cents immediately before the RBA statement and from 94.38 cents on Monday.

The local dollar slipped to 69.25 US cents from as high as 69.67 US cents, having surged from 68.28 cents on Friday, after a weaker-than-expected US labour market report.

The RBA kept its cash rate unchanged at a record low 1.75 per cent and governor Glenn Stevens said that having cut rates at its May meeting, the stance of policy was now about right to ensure sustainable economic growth and inflation returning to its target band over time.

Traders are now looking ahead to the Reserve Bank of New Zealand's monetary policy report on Thursday amid expectations governor Graeme Wheeler will hold off cutting rates given the economy is growing at a respectable pace and the housing market doesn't need more stimulus.

"The market may have anticipated some form of stimulus in the shape of a rate cut (from the RBA) and we're probably seeing people have to reprice the Aussie dollar given the RBA was slightly more hawkish," said Sheldon Slabbert, sales trader at CMC Markets.

While whole milk powder prices were weaker in the latest dairy auction, "the housing market doesn't need more stimulus and overall business conditions aren't too bad," Slabbert said. There's a growing sense that "cutting interest rates is not necessarily a magic bullet."

The New Zealand dollar gained to 47.65 British pence from 47.39 pence on Friday after latest polling results showed support for Britain leaving the European Union, ahead of a June 23 referendum. The kiwi increased to 74.53 yen from 74.17 yen and rose to 4.5443 yuan from 4.4951 yuan. It was little changed at 61.16 euro cents from 61.19 cents.

The two-year swap rate rose about 3 basis points to 2.22 per cent and the 10-year swaps rose 3 points to 2.82 per cent.

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