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NZ dollar surges as rate cuts look complete, Aussie weighed by iron ore

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The New Zealand dollar hit a three-week high on Wednesday after the central bank stepped up warnings on house prices, reinforcing market expectations it was done cutting interest rates.

[SYDNEY] The New Zealand dollar hit a three-week high on Wednesday after the central bank stepped up warnings on house prices, reinforcing market expectations it was done cutting interest rates.

In contrast, the Australian dollar lost momentum following a sharp correction in iron ore prices and a shockingly weak building approvals report.

The New Zealand dollar rose to US$0.7149, having climbed to a three-week peak of US$0.7159. Resistance was found at US$0.7228 with support around US$0.7130.

Much of the strength came after the Reserve Bank of New Zealand (RBNZ) flagged possible restrictions on mortgage lending to curb a soaring property market, suggesting it was done cutting rates.

"The RBNZ still sees risks to the financial system via housing," said Nick Tuffley, chief economist at ASB Bank.

"We continue to expect the RBNZ to keep the official cash rate on hold at 1.75 percent for the foreseeable future."

Earlier this month, the central bank cut rates to a record low of 1.75 per cent.

The kiwi powered up to its highest in 11 months against the yen at 80.52, putting it in on track for a 7.5 per cent monthly gain, the largest since 2012.

It also stood tall against the euro which dropped to NZ$1.4888, showing a loss of 3 per cent in November.

Across the Tasman Sea, the Australian dollar eased to US$0.7471, from US$0.7489 early, having met heavy resistance ahead of 75 US cents. Support was found at US$0.7456, then US$0.7445.

The Aussie started its descent after domestic building approvals dropped 12.6 per cent in October, a blow to what has been one of the strongest sectors of the economy.

It took another knock after iron ore futures traded in China skidded 7 per cent, a second day of sharp losses. Iron ore is Australia's top export earner.

For the month, the Aussie is down 1.8 per cent, largely due to US dollar strength following the election of Donald Trump to president.

The Aussie also underperformed its kiwi cousin to trade at NZ$1.0431, moving closer to the November low of NZ$1.0354. It has lost 1.7 per cent this month.

Australian government bond futures were mixed, with the three-year bond contract off one tick at 98.080. The 10-year contract shed 2.5 ticks to 97.3050, while the 20-year contract gained one tick to 96.7150.

New Zealand government bonds eased, sending yields two basis points higher at the long end.

REUTERS