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NZ dollar falls as US healthcare reform proceeds, RBNZ sees lower 'neutral' rate

Wednesday 26th July 2017

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The New Zealand dollar fell after the US Senate narrowly voted to proceed with healthcare reform, stoking optimism about the Trump administration's policy programme while at home the Reserve Bank said the 'neutral' level for its benchmark interest rate has been falling.

The kiwi fell to 74.09 US cents at 8.30am in Wellington from 74.38 cents late yesterday. The trade-weighted index fell to 78.33 from 78.51.

US Senate Republicans agreed to begin debate on a bill that would scrap Obamacare after Vice President Mike Pence cast a tie-breaking vote, Reuters reported. Markets rallied with the election of US President Donald Trump last year but the greenback has since weakened on concern he is failing to enact economy-boosting policies. Meanwhile, the US Federal Reserve is meeting and investors are waiting to see whether it will dial back plans for further rate hikes.

"The main questions are around future guidance. Will the Fed firm up guidance on when it expects to commence the process of balance sheet adjustment and will there be any toning down on further tightening language?" Bank of New Zealand economist Doug Steel said in a note. "Current consensus, and our view, is that the Fed will indicate timing of its balance sheet reduction in September and wait until December to lift rates again."

Reserve Bank Assistant Governor John McDermott said in a speech that the neutral interest rate has moved below 4 percent, with the median of the indicator suite currently sitting around 3.5 percent and also said a lower New Zealand dollar would help rebalance growth and lower the country's net foreign liabilities.  

Investors will also be keeping a close eye on events across the Tasman today as Australia reports its second-quarter consumer price inflation data and Reserve Bank of Australia Governor Philip Lowe is due to deliver a speech titled "The Labor Market and Monetary Policy." 

The kiwi fell to 63.64 euro cents from 63.77 cents late yesterday and rose to 82.98 yen from 82.55 yen. It slipped to 56.90 British pence from 57.09 pence and declined to 5.0041 yuan from 5.0192 yuan. It fell to 93.42 Australian cents from 93.69 cents yesterday.


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