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RBA rates decision keeps kiwi in check

NZ NewswireNZ Newswire 5/07/2016 Paul McBeth
The kiwi traded at 95.81 Australian cents at 5pm in Wellington from 95.83 cents immediately before the release and almost unchanged from Monday. © Brendon Thorne/Bloomberg The kiwi traded at 95.81 Australian cents at 5pm in Wellington from 95.83 cents immediately before the release and almost unchanged from Monday.

The New Zealand dollar was little changed against its trans-Tasman counterpart after the Reserve Bank of Australia kept interest rates on hold and disappointed some investors expecting the central bank to pave the way for another cut.

The kiwi traded at 95.81 Australian cents at 5pm in Wellington from 95.83 cents immediately before the release and almost unchanged from Monday. The trade-weighted index increased to 76.86 from 76.65 yesterday.

RBA governor Glenn Stevens said the board "judged that holding monetary policy steady would be prudent at this meeting", keeping the target cash rate at 1.75 per cent, and saying further information was needed to "allow the board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate".

The Australian dollar dipped to 75.08 from 75.21 cents immediately before the release.

New Zealand data on Tuesday showed businesses recovered their optimism about local economic activity, while separate figures showed house prices continued to accelerate in June. Meantime, Prime Minister John Key said he'd support the Reserve Bank imposing new restrictions on mortgage lending to try and slow the property market. Reserve Bank deputy governor Grant Spencer will deliver a speech on macroprudential policy and housing risk on Thursday evening.

Traders are pricing in a 55-to-60 per cent chance of rate cut next month, and that the currency's strength is posing a bigger problem for the Reserve Bank than the housing market - its two major concerns. The kiwi gained to 71.97 US cents from 71.77 cents on Monday.

New Zealand's relatively high interest rates have attracted investors wary of Europe and the UK after the British referendum, and as central banks around the world look set to continue with near-zero policies. The two-year swap rate decreased one basis point to 2.16 per cent and 10-year swaps were down three basis points to 2.56 per cent.

The local currency increased to 54.32 British pence from 54.02 pence on Monday, and gained to 64.67 euro cents from 64.44 cents. It declined to 73.44 yen from 73.70 yen on Monday and rose to 4.7981 Chinese yuan from 4.7799 yuan.

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