NZ dollar tad weaker ahead of cash rate review

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The New Zealand dollar is slightly weaker as markets anticipate the central bank will attempt to jawbone it lower in tomorrow's official cash rate review while keeping rates on hold at 1.75 per cent.

The local currency traded at 72.16 US cents from 72.37 US cents as at 8am and 72.46 cents yesterday and was at 77.94 on a trade-weighted index basis from 78.06 yesterday.

"There's a bit of waiting for tomorrow with the RBNZ out at 9am and there is a bit of expectation building that the RBNZ will step up its rhetoric directed at a currency, which is a factor weighing on the kiwi a bit," said ANZ Bank senior economic Phil Borkin. The kiwi is much higher than the central bank anticipated but Borkin said it will be hard pressed to say it is "unjustifiably" high.

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"It's higher than they would like, it complicates the outlook for inflation, but when you have the terms of trade effectively at all time highs there are some fundamental reasons why the currency is strong. It's hard from for them to talk the currency down too aggressively," he said. While New Zealand's first quarter gross domestic product disappointed markets, Borkin said he expects growth to rebound in the next quarter and noted that other data - like consumer and business confidence - remain very positive.

Borkin said the currency largely took the dairy auction in stride after prices fell 0.8 per cent in the trade-weighted index's first decline since March.

He doesn't expect the central bank to hint at a possible rate cut."We think the hurdle for change in either direction is very high and it will be a case of things on hold for an extended period," he said.

The kiwi held relatively firm against the British pound after Bank of England governor Mark Carney said it wasn't the time to raise interest rates, and was trading at 57.12 British pence after climbing as high as 57.42 British pence overnight - the highest since March 6 - and from 56.89 pence yesterday. It traded at 64.83 euro cents from 65.01 cents.

It was at 95.49 Australian cents from 95.32 cents as the Australian dollar was hurt by multi-month lows in oil prices. The kiwi traded at 80.31 yen from 80.93 yen yesterday and traded at 4.9281 from 4.9498 yuan.

New Zealand's two-year swap rate fell 1 basis point to 2.20 per cent while the 10-year swap rate was unchanged at 3.14 per cent.