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NZ dollar tumbles 1 US cent after Greece calls new election, dairy prices fall

Wednesday 16th May 2012

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The New Zealand dollar fell 1 US cent after Greek politicians called for new elections after crisis talks failed and dairy product prices declined for the third straight sale in Fonterra's global auction.

The New Zealand dollar fell as low as 76.77 US cents overnight, a 5-month low, from 77.76 cents yesterday at 5pm. It traded at 76.82 cents just before 8am. The trade weighted index decreased to 69.62 from 70.17.

Investors were temporally upbeat after the Eurozone narrowly avoid a second recession as gross domestic product for the region showed zero growth in the first quarter.

That came just before Greece’s three main political parties announced they have been unable to reach an agreement after nine days of talks. A fresh round of elections will now be held early next month.

"The kiwi nearly got back up to 78 US cents on the back of Europe's GDP data - it means the European Union as a whole was kept out of recession," said Stuart Ive, currency strategist at HiFX. "That was followed by a slow drop off as Greece came back into the forefront - that sent the usual jitters through markets."

The New Zealand dollar fell as low as 60.28 euro cents overnight from 60.62 cents yesterday. It recently traded at 60.37 cents.

The New Zealand dollar continued its downward slide after dairy products fell 6.4 percent at Fonterra Cooperative Group’s GlobalDairyTrade auction. The average sale price has now shed 41 percent in the past 12 months. The decline reflects a broader slide in commodity prices as traders' factor in weaker demand from China and uncertainty in Europe that has helped drive up the US dollar and increased supply.

In the US, the world's largest economy, retail sales increased 0.1 percent in April, the slowest pace in a year, according to government data. That matched the forecast predicted by economists in a Bloomberg survey.

There is no significant New Zealand data set for release today.

The New Zealand dollar decreased to 77.39 Australian cents from 77.92 cents and dropped to 48.04 British pence from 48.33 pence. The kiwi slipped to 61.66 yen from 62.11 yen.

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