NZ dollar down on geopolitical tensions

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The New Zealand dollar fell as a less dovish than expected statement and forecasts from the central bank were overshadowed by tensions between the United States and North Korea.

The kiwi traded at 73.09 US cents as at 5pm in Wellington from 73.26 US cents as at 8am in Wellington from 73.16 cents late yesterday. The trade-weighted index was at 77.11 from 77.19 yesterday.

The kiwi initially gained when central bank Governor Graeme Wheeler kept the official cash rate at 1.75 per cent with future projections unchanged, disappointing some economists who had expected him to signal rate hikes would come even later than previously forecast. However, it swiftly pared any gains to settle back near where it was at the start of the trading day in Wellington.

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"Monetary policy will remain accommodative for a considerable period," Wheeler said in a statement. "Numerous uncertainties remain and policy may need to adjust accordingly."
That particular line weighed on the kiwi as the central bank is "unequivocally neutral and by neutral, there's an equal chance of a hike or a cut," said Mark Johnson, senior dealer at OMF.

The New Zealand dollar came under further pressure in Asia trading as it remains unclear how the Korean situation will play out. North Korea's apparently rapid progress in developing nuclear weapons and missiles capable of reaching the U.S. mainland has fueled tensions. According to Reuters, North Korea dismissed as a "load of nonsense" warnings by US President Donald Trump that it would face "fire and fury" if it threatened the United States, and outlined on Thursday detailed plans for a missile strike near the Pacific territory of Guam.

The kiwi was trading at 80.44 yen from 80.42 late yesterday. It was at 4.8758 yuan from 4.8950 yuan. It traded at 62.28 euro cents from 62.31 cents, was at 56.26 British pence from 56.34 pence and at 92.77 Australian cents from 92.91 cents.

New Zealand's two-year swap rate rose 3 basis points to 2.18 per cent while 10-year swaps rose 4 basis points to 3.18 per cent.