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NZD hit as RBNZ keeps rate cut plan intact

NZ Newswire logoNZ Newswire 11/10/2016 Paul McBeth

The kiwi dropped below 71 US cents as the RBNZ reaffirmed its intention to further cut interest rates. © REUTERS/Dennis Owen The kiwi dropped below 71 US cents as the RBNZ reaffirmed its intention to further cut interest rates. The New Zealand dollar fell below 71 US cents for the first time in two months as Reserve Bank assistant governor John McDermott reaffirmed the bank's intention to cut interest rates further.

The kiwi dropped to 70.69 US cents at 5pm in Wellington from 71.26 cents at 8am and 71.53 cents on Monday. The trade-weighted index fell to 75.86 from 76.47.

The RBNZ anticipates it will need to make monetary policy looser to try and stir inflation, which will remain subdued in the near term, McDermott told a business audience in Rotorua.

The bank's forecast for annual inflation in the September quarter is 0.2 per cent, though its margin of error means the annual consumers price index could be between zero and 0.5 per cent, before rising to the lower end of bank's 1-to-3 per cent target band in the December quarter.

"He simply reminded the market that the cut is still in the pipeline and it will be soon," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland.

New Zealand's two-year swap rate fell two basis points to 2.02 per cent and 10-year swaps increased one basis point to 2.6 per cent.

McDermott acknowledged the strong level of migration had increased New Zealand's ability to grow without spurring inflation, and on Tuesday Immigration Minister Michael Woodhouse announced new policies that would curb the number of new migrants entering the country.

Westpac's Speizer said that policy could be interpreted as either a positive or a negative by investors, with lower migration reducing the labour supply which would push up wages and lift inflation, or cutting consumer demand and stifling growth.

The kiwi fell to 93.60 Australian cents from 94.18 cents on Monday and dropped to 4.7455 Chinese yuan from 4.7925 yuan. It slipped to 73.39 yen from 73.57 yen and decreased to 63.49 euro cents from 63.92 cents. It fell to 57.36 British pence from 57.69 pence.

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