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NZ dollar falls after China's manufacturing unexpectedly shrinks

Monday 3rd September 2012

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The New Zealand dollar fell after manufacturing data out of China unexpectedly shrank for the first time in nine months, signaling further signs of a slowdown in the world's second-largest economy.

The New Zealand dollar fell as low as 79.87 US cents, the lowest since July 25. It traded at 79.95 at 8am down from 80.32 cents at the close of trading in New York. The trade-weighted index declined to 71.88 from 72.13.

Manufacturing data from China, New Zealand's second-largest export market, fell to 49.2 in August from 50.1 in July, based on the Purchasing Managers Index, as new orders contracted and output rose at a slower pace. The data places increased pressure on Premier Wen Jiabao to reverse the slowdown ahead of the transfer of power to a new communist party leadership which begins later this year.

"Risk assets (such as the New Zealand dollar) are starting the week lower," said Mike Jones, market strategist at Bank of New Zealand. "I don't think this movement in the kiwi will extend because policy stimulus is standing out there as a positive for markets,"

At the annual central bankers retreat in Jackson Holt, Wyoming, Federal Reserve chairman Ben Bernanke underpinned that policy makers are ready to act to accelerate the pace of economic expansion, yet again stopped short of announcing specific measures. Investors are now looking to European Central Bank President Mario Draghi and the comments he'll make following the central bank's policy meeting on Thursday.

"Bernanke signaled that the asset purchase plan was in the barrel - but we knew that already," Jones said.

Markets in the US will be closed for the Labor Day holiday on Monday.

Jones said the kiwi is likely to finish the week lower, trading in a range of 78.40 US cents to 80.50 cents.

New Zealand data out today includes ANZ job advertisements and terms of trade (volumes and prices) for the second quarter from Statistics New Zealand.

The New Zealand dollar fell to 63.70 euro cents from 63.85 cents at the close of trading in New York on Friday and declined to 50.40 British pence from 50.60 pence. It dropped to 62.70 yen from 62.90 yen. The kiwi rose to 77.82 Australian cents from 77.73 cents.

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