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NZD falls as traders mull deeper OCR cut

NZ Newswire logoNZ Newswire 4/08/2016 Jonathan Underhill

The two-year swap rate has fallen some 80 basis points this year and briefly fell below 2 per cent earlier in the day. © Bloomberg The two-year swap rate has fallen some 80 basis points this year and briefly fell below 2 per cent earlier in the day. The New Zealand dollar fell and the two-year swap rate dropped below 2 per cent for the first time as traders pondered the prospects of a deeper cut to the official cash rate next week.

The kiwi dollar traded at 71.69 US cents as at 5pm in Wellington, having earlier sunk as low as 71.35 cents, from 72 cents on Wednesday. The trade-weighted index was at 76.05, having touched 75.82 earlier, from 76.46.

The two-year swap rate has fallen some 80 basis points this year and briefly fell below 2 per cent earlier in the day on speculation the Reserve Bank is sufficiently concerned about weak inflation and a strong currency to contemplate a cut of 50 basis points on Aug. 11, pushing the OCR to within a quarter-point of the Reserve Bank of Australia's 1.5 per cent cash rate.

Ahead of the RBNZ's policy statement, the Bank of England reviews policy overnight and could cut its bank rate from 0.5 per cent, while on Friday in the US, official payrolls data is expected to show the world's biggest economy added 180,000 jobs last month and a stronger number could reignite speculation for a Federal Reserve rate hike this year.

"There's obviously some key event risk coming up," said Philip Borkin, senior economist at ANZ.

Next week's monetary policy statement is expected to be "relatively dovish", says Borkin, but ANZ doesn't expect 50 basis points of cuts because the only other times the RBNZ has cut that much has been after emergency-type events such as the February 2011 earthquake in Christchurch and a massive period of easing between September 2008 and April 2009, in the depths of the global financial crisis, when the central bank slashed the OCR by 5.5 percentage points.

The kiwi fell to 94.18 Australian cents from 94.80 cents on Wednesday. It was little changed at 72.63 yen from 73.58 yen and was at 64.28 euro cents from 64.25 cents. It fell to 53.77 British pence from 54.44 pence. It fell to 4.7564 Chinese yuan from 4.7893 yuan yesterday.

New Zealand's two-year swap rate ended the day little changed at about 2 per cent and the 10-year swaps fell 1 basis point to 2.45 per cent.

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