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Kiwi dips then recovers on weaker than expected data

Thursday 23rd December 2010

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The New Zealand dollar recovered from a fall triggered by weaker than expected growth data for the September quarter, which reinforced an expectation that the official cash rate will be on hold until at least the middle of next year.

New Zealand's gross domestic product contracted 0.2% in the September quarter, with the manufacturing, construction and mining industries all in reverse, Statistics New Zealand said.

The market was expecting a small rise, and the Reserve Bank of New Zealand a 0.3% rise.

The NZ dollar fell from around US74.20c to US74.00c on the news but recovered to be US74.35c at 5pm, which compared with US74.20c at the same time yesterday.

Dealers said there was demand for the currency at lower levels. Trading is thin ahead of the Christmas holiday season

The local currency is trading at fresh 10-year lows against the Australian dollar, and was at A74.18c by 5pm from A74.19c at 8am and A74.41c at 5pm yesterday.

BNZ currency strategist Mike Jones said the GDP was a surprise to the market.

"It probably tells us the economy is a little weaker than what people thought but it is expected to recover from here," he said.

It did not change the fact that the central bank would sit on its hands until the middle of next year and perhaps even longer than that.

The numbers were "all over the place" with big positives and big negatives in the breakdown.

There was a concern that another quarter of negative growth would produce a technical recession.

The NZ dollar slipped to 61.77 yen by 5pm from 62.14 at 5pm yesterday, while the trade weighted index was unchanged at 67.19.

The NZ dollar was at 0.5669 euro from 0.5666 at 8am and 0.5647 yesterday.

 

NZPA



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