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NZ dollar eases after Bollard remarks, strong vs aussie

Fuseworks Media
Fuseworks Media

Wellington, Aug 19 NZPA - The New Zealand dollar slipped slightly today after Reserve Bank Governor Alan Bollard issued a warning against excessive price rises when the goods and services tax rises in October 1.

The NZ dollar was US71.13c at 5pm from US71.52c at 8am and US71.06c at 5pm yesterday.

It has been very volatile against the Australian dollar. The cross rate has been weak in recent weeks but it rose on Thursday night and briefly topped A79.75c, its highest level in 10 days. By 5pm it was A79.32c from A78.78c at the same time yesterday.

The volatility is being put down to traders unwinding positions ahead of the Australian election at the weekend.

The main event today was a speech by Dr Bollard about the inflation consequences of the GST rise.

The bank is able to "look through" the impact of the rise on inflation but does not want it to fuel excessive price rises or have secondary effects on inflation.

Dr Bollard said the recovery was certainly not a fast or robust one.

"We expect growth to continue, led by exports as household and business spending remains subdued. This outlook and associated policy implications will be reviewed over coming weeks as we prepare the September Monetary Policy Statement," he said.

The speech was viewed overall as dovish and it knocked the NZ dollar down about 20 points, said ANZ chief currency dealer Murray Hindley.

He said it found support at lower levels.

BNZ markets strategist Mike Jones said election uncertainty had started to weigh on the Australian dollar, particularly related to possible changes to resources tax and the introduction of austerity measures.

Along with its strengthening against the aussie, the NZ dollar was underpinned overnight by rumoured demand from sovereign and quasi-sovereign accounts.

The NZ dollar also reached a two-week high of 0.5578 euro overnight before falling back to 0.5560 by 5pm from 0.5535 at the same time yesterday.

Against the Japanese currency, it was 61.04 yen from 60.73 yesterday. The trade weighted index was 66.57 at 5pm from 66.31 yesterday.

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