  We use cosmological hydrodynamical galaxy formation simulations from the
NIHAO project to investigate the response of cold dark matter (CDM) haloes to
baryonic processes. Previous work has shown that the halo response is primarily
a function of the ratio between galaxy stellar mass and total virial mass, and
the density threshold above which gas is eligible to form stars, $n [{\rm
cm}^{-3}]$. At low $n$ all simulations in the literature agree that dwarf
galaxy haloes are cuspy, but at high $n\ge 100$ there is no consensus. We trace
halo contraction in dwarf galaxies with $n\ge 100$ reported in some previous
simulations to insufficient spatial resolution. Provided the adopted star
formation threshold is appropriate for the resolution of the simulation, we
show that the halo response is remarkably stable for $n\ge 5$, up to the
highest star formation threshold that we test, $n=500$. This free parameter can
be calibrated using the observed clustering of young stars. Simulations with
low thresholds $n\le 1$ predict clustering that is too weak, while simulations
with high star formation thresholds $n\ge 5$, are consistent with the observed
clustering. Finally, we test the CDM predictions against the circular
velocities of nearby dwarf galaxies. Low thresholds predict velocities that are
too high, while simulations with $n\sim 10$ provide a good match to the
observations. We thus conclude that the CDM model provides a good description
of the structure of galaxies on kpc scales provided the effects of baryons are
properly captured.
