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Dollar dips on weaker than expected GDP data

Thursday 23rd December 2010

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The New Zealand dollar stepped lower after weaker than expected growth data for the September quarter 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. Earlier in the session it had been little changed from yesterday at around US74.17c.

It was already trading at fresh 10-year lows against the Australian dollar and was at A74.11c by midday 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 61.86 yen by midday from 62.14 at 5pm yesterday, while the trade weighted index dropped to 67.04 from 67.19.

The NZ dollar was at 0.5653 euro from 0.5666 at 8am and 0.5647 yesterday.

The euro dropped to a record low against the Swiss franc for the sixth straight day, with losses accelerating on concern the euro zone debt crisis will continue well into 2011.

"We view the surging Swiss franc heading into year end as an ominous warning sign for further trouble ahead in the euro zone in early 2011," said Lee Hardman, currency economist at the Bank of Tokyo-Mitsubishi UFJ in London.

 

NZPA



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