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NZ dollar falls below 80 cts for first time since January after weak US data

Friday 4th May 2012

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The New Zealand dollar fell below 80 US cents for the first time since January after weaker-than-expected US data and a surprise gain in local unemployment stoked bets the Reserve Bank may cut interest rates.

The New Zealand dollar fell as low as 79.83 US cents overnight, the lowest it has fallen since January 17. The kiwi traded at 79.91 cents at 8am this morning, down from 80.58 cents at 5pm yesterday. The trade weighted index decreased to 71.25 from 71.79.

For the first time since early February, traders are betting the central bank will cut the official cash rate in the next 12 months – by 10 basis points based on the Overnight Index Swap curve. Government figures yesterday showed the jobless rate climbed to 6.7 percent in the first quarter.

Globally investors are awaiting US non-farm payrolls data for clues to American growth after figures showed the services sector weakened though jobless claims also fell.

“If we see a solid non-farm payrolls number then the kiwi will remain under pressure," said Stuart Ive, currency strategist at HiFX.  "If we get a non-farm payrolls number that is particularly weak this may put more pressure on the Fed to apply quantitative easing."

Economists in a Bloomberg survey are predicting Friday’s payrolls report will show that US employers added 160,000 new jobs last month.

The US Institute for Supply Management reported yesterday that its service index fell to a fourth-month low, dropping to 53.5 in April from 56 in March. Economists polled by Reuters expected a 55.5 reading.

Separately, the Labor Department reported that new claims for jobless help fell by 27,000 to a seasonally adjusted 365,000, its biggest weekly decline in almost a year.

Fed policy makers have said they will hold off increasing monetary accommodation unless US economic expansion falters or prices rise at a slower rate. In January, it pledged to keep interest rates near zero until at least the end of 2014.

The New Zealand dollar fell to 60.78 euro cents from 61.33 cents. Europe's interest rates will remain at 1 percent after the European Central Bank President Mario Draghi told reporters policy makers didn't discuss cutting rates at their latest meeting.

That comes ahead of this weekend's general election in Greece, where the Euro-zone will be watching to see whether the next elected government will ratify the austerity measures the Mediterranean nation needs to implement to secure its International Monetary Fund bail-out.

France will also go to the polls on May 6 where it is expected that President Nicolas Sarkozy will lose his job to Socialist challenger Francois Hollande.

The kiwi slipped to 77.87 Australian cents from 87.19 cents. It decreased to 49.39 British pence from 49.81 pence and slide to 64.06 yen from 64.65 yen.

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