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Kiwi drops below US71c as Wall Street extends loss

Friday 13th August 2010

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The New Zealand dollar extended its decline, falling below 71 US cents for the first time in more than three weeks as stocks on Wall Street dropped further amid more weak data.  

The number of American workers filing new claims for the unemployment benefit rose to a six-month high 484,000, taking the total number to 4.45 million people.

The Standard & Poor's 500 index fell 0.5% as investors remained on edge over the outlook for the world's biggest economy.

New Zealand's economy took a knock yesterday with data showing the manufacturing sector contracted in July for the first time in 14 months, while the retail trade data will show core consumer spending grew 0.2% in the June quarter, according to a Reuters survey.

Markets have pared back their expectations for the Reserve Bank of New Zealand's track to hike interest rates, with 60 basis points priced in for the next 12 months, compared to 128 points on July 28, the day before the last review.

"Currency markets paused for breath overnight - there wasn't the same vicious movement from the previous day, but there was enough headwind for the New Zealand dollar to continue to slide," said Mike Jones, strategist at Bank of New Zealand.

"There are twin headwinds for the kiwi from reduced RBNZ tightening forecast and a more subdued risk picture globally."

The kiwi dropped to 70.87 US cents from 71.08 cents yesterday, and declined to 66.31 on the trade-weighted index of major trading partners' currencies from 66.48. It gained to 60.88 yen from 60.70 yen yesterday, and slipped to 79.10 Australian cents from 79.52 cents. It fell to 55.28 euro cents from 55.46 cents yesterday, and was little changed at 45.51 pence from 45.59 pence.

Jones said the currency may trade between 70.50 US cents and 71.30 cents today amid what's expected to be fairly lacklustre consumer spending figures. If a "terrible" number comes in, the kiwi may push below 70 cents.

Real Estate Institute of New Zealand sales data is due today and will likely show the property market is still in the doldrums after holding up well during the worst of the recession.

Euro-zone second-quarter gross domestic product data is released today, and is expected to show the region's has bounced back from its sovereign debt troubles earlier this year, with quarterly growth of 1% predicted.

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