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NZ dollar gains as GDP growth swells appeal, global outlook dims

Friday 21st September 2012

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The New Zealand dollar gained as growth in the domestic economy partly offset weaker offshore news, including continued contraction in Chinese and Europe-wide manufacturing.

The kiwi dollar rose to 82.86 US cents from 82.44 cents at 5pm yesterday. The trade-weighted index rose to 73.55 from 73.18. The kiwi gained initially after the gross domestic product figures yesterday, before selling off after the Chinese data and subsequently recovering overnight.

The domestic economy grew 0.6 percent in the second quarter, twice the forecast pace, driven by record milk production and increased building activity. The kiwi weakened again after the HSBC Flash Chinese PMI gave a reading of 47.8 on a scale where below 50 signals a contraction. The European composite PMI, meantime, was at 45.9.

"The kiwi continues to draw support from the fact the NZ economy remains in better shape than most," said Mike Jones, currency strategist at Bank of New Zealand. "We believe positive relative growth and interest rate differentials will support the NZD through to mid-2013."

Bank of New Zealand expects the kiwi to finish the year at around 82 US cents.

New Zealand 10-year bonds are yielding about 3.64 percent, or about 187 basis points more than comparable US Treasuries. The Federal Reserve is keeping its key interest rate target near zero, compared to New Zealand's 2.5 percent official cash rate.

Yesterday, incoming Reserve Bank Governor Graeme Wheeler and Finance Minister Bill English signed an updated policy targets agreement that keeps the focus on price stability and doesn't attempt to give the bank a greater role in trying to rein in a strong kiwi dollar. The opposition Labour Party has called for the bank to do more to weaken the currency, which hurts the nation's export sales.

The kiwi dollar rose to 63.84 euro cents from 63.39 cents and gained to 51.11 British pence from 50.88 pence. The currency rose to 64.85 Japanese yen from 64.39 yen and rose to 79.40 Australian cents from 79.17 cents.

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