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NZ dollar drops after Bollard says currency strength will keep rates low

Thursday 8th March 2012

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The New Zealand dollar fell after Reserve Bank Governor Alan Bollard said the strength of the currency will keep interest rates lower for longer and weigh on economic growth.

The New Zealand dollar fell to 81.52 US cents at 9.25am from 81.92 cents immediately before Bollard released the monetary policy statement at 9am. The trade-weighted index fell to 72.41 from 72.77.

Bollard said a strong kiwi dollar constrains imported inflation but it also is “detrimental to the tradable sector, undermines GDP growth and inhibits rebalancing in the New Zealand economy.” He cut the top end for the track of the 90-day bank bill, which he sees settling at 3.6 percent by the tail-end of 2014. It had previously projected the rate would rise to 4 percent by September next year.

"It is a much more dovish tone than expected,” said Cameron Bagrie, chief economist at ANZ National Bank. “The New Zealand dollar will remain under pressure within our time zone - domestic considerations tend to have a lifeline of 12 hours.”

The kiwi dollar erased much of the half a US cent gain overnight that was driven by US figures showing the world’s largest economy added 216,000 jobs in the private sector in February.

The bank lifted its forecast for the kiwi dollar, with the TWI expected to hold above 70 until the December quarter next year. The Reserve Bank had previously expected the TWI to fall to 65 from 67 over that period.


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