NZ dollar follows Aussie lower

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The New Zealand dollar followed the Australian dollar lower against the greenback after the Reserve Bank of Australia warned the nation's weak wage growth was set to stay subdued.

The kiwi fell to 69.87 US cents as at 5pm in Wellington from 69.92 cents immediately before the RBA announcement and 70.03 cents yesterday. The local currency rose to 92.13 Australian cents from 91.90 cents before the statement and 92.02 cents yesterday.

The RBA kept its target cash rate unchanged at 1.5 per cent, saying inflation was still "quite low" and while the headline figure would rise to 2 per cent through the course of the year, "underlying inflation is expected to be a bit more gradual with growth in labour costs remaining subdued". Governor Philip Lowe said the RBA still expects to see growth in employment even though the labour market had been tepid to date.

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"There was obviously a dovish shift in the commentary that caused a sell-off in the Aussie," said Imre Speizer, senior market strategist at Westpac Banking Corp. "The kiwi went along for the ride in sympathy."

Local data showed New Zealand firms grew less optimistic about the country's economic conditions, even as their own activity remained relatively robust. The GlobalDairyTrade auction overnight will be watched, although pricing in NZX dairy futures indicate there won't be much of a change at the event.

New Zealand's two-year swap rates fell four basis points to 2.25 per cent, and 10-year swaps declined six basis points to 3.33 per cent.

Westpac's Speizer said local swaps followed the decline in US interest rates markets, where the yield on 10-year US Treasuries fell two basis points to 2.33 percent, on a growing bout of risk aversion. That bolstered demand for safe-haven assets such as the yen and greenback, he said.

The kiwi dropped to 77.14 yen from 77.97 yen yesterday and fell to 4.8086 Chinese yuan from 4.8210 yuan. It was little changed at 65.45 euro cents from 65.56 cents and rose to 56.01 British pence from 55.84 pence.

The trade-weighted index slipped to 75.93 from 76.04.