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NZ dollar dips vs Aussie after RBA more upbeat than expected

Tuesday 7th August 2018

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The New Zealand dollar dipped against its trans-Tasman counterpart after the Reserve Bank of Australia kept interest rates on hold and was more upbeat on the economy than expected. 

The kiwi traded at 90.98 Australian cents as at 5pm versus 91.07 cents at 8am and down from 91.16 cents yesterday. It traded at 67.26 US cents from 67.36 cents yesterday.

The RBA kept the target cash rate at 1.5 percent as forecast by all 29 economists polled by Bloomberg. Interest rates have now been on hold in Australia for two years. In a statement accompanying the decision, RBA governor Philip Lowe said its "central forecast for the Australian economy remains unchanged" with growth expected to average a bit above 3 percent in 2018 and 2019. 

While Lowe said "one-off declines in some administered prices in the September quarter are expected to result in headline inflation in 2018 being a little lower than earlier expected," the RBA still expects inflation to be higher in 2019 and 2020 than it is currently. 

"It was a balanced statement, with short-term inflation lower but medium-term higher," said Ross Weston, a senior trader at Kiwibank. Weston said the kiwi dipped because the "market expected a slightly more downbeat assessment but that didn't happen." 

Investors will now be waiting for a rate decision and statement from New Zeland's central bank Thursday. The Reserve Bank is expected to keep the official cash rate at a 1.75 percent but its forecasts on growth, inflation and interest rates will be closely watched. 

The kiwi increased to 4.6106 Chinese yuan from 4.5998 yuan yesterday and traded at 74.90 yen from 75.02 yen. It was little changed at 58.21 euro cents from 58.31 cents yesterday and edged up to 51.97 British pence from 51.86 pence.

The trade-weighted index was at 72.62 from 72.66 yesterday.

New Zealand's two-year swap rate was down 1 basis points at 2.09, while 10-year swaps decreased 2 basis point to 2.99 percent.


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