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Kiwi drops to two-month low against greenback

Wednesday 23rd February 2011

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The New Zealand dollar dropped to a two-month low against the greenback around US74.50c overnight, amid speculation about the economic damage that will follow yesterday's devastating Christchurch earthquake.

The kiwi fell from around US76.30c when the quake hit just before 1pm to bottom out around 11.30pm. It then stayed in a band between US75.10c and US74.70c.

Economic researchers and analysts Moody's Analytics said yesterday's quake would be another "devastating blow" to an economy struggling to gather steam, and it could be condemned to another year of anaemic growth due to forces beyond New Zealand's control.

In world markets overnight risk aversion was the dominant theme after the defiance of Libyan leader Muammar Gaddafi in the face of mounting public revolt stoked uncertainty, while there were some supply cuts from one of the world's major oil exporters.

The euro erased early gains garnered against the US dollar after hawkish comments from European Central Bank officials increased euro zone rate hike expectations.

For the NZ dollar, part of its weakness was attributed to speculation that the economic damage caused by the earthquake may increase the chance of an interest rate cut.

BNZ currency strategist Mike Jones said for now BNZ did not expect the Reserve Bank would cut the official cash rate (OCR), largely because lowering interest rates would do little, if anything, to help.

But BNZ had shifted its OCR rate view and now expected the Reserve Bank to keep the OCR unchanged for the rest of 2011.

The kiwi also fell to a two-month low against the Australian dollar about 11.30pm, around A74.45c, having dropped from about A75.70c before the quake. By 8am it had edged up to near A75c.

Against the European currency, the NZ dollar dropped to its lowest level in nearly four months below 0.5480 euro early today, from 0.5580 before the earthquake. The trade weighted index was down to 66.69 at 8am from 66.98 at 5pm yesterday.



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