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NZ dollar falls after IMF cuts global growth forecasts

Wednesday 10th October 2012

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The New Zealand dollar followed equity markets lower after the International Monetary Fund cut its forecast for global growth, snapping demand for risk-sensitive currencies such as the kiwi.

The New Zealand dollar fell to 81.84 US cents at 8am in Wellington from 82.27 cents at 5pm yesterday. The trade weighted index decreased to 73.16 from 73.38 yesterday.

The IMF sounded an alarm over the global economic slowdown, cutting its 2012 and 2013 growth forecasts. The global economy will expand 3.3 percent this year and 3.6 percent in 2013, it said in its World Economic Outlook. That's down from its July forecast of 3.5 percent for 2012 and 3.9 percent in 2013.

Equity markets fell on both sides of the Atlantic. Wall Street's Standard and Poor's 500 Index shed 0.7 percent, while the Dow Jones Industrial Average dropped 0.6 percent. France's CAC 40 declined 0.7 percent.

"The global forecasts are probably correct and there is safe-haven buying on the back of it" helping push the New Zealand dollar lower, said Tim Kelleher, head of intuitional FX sales NZ at ASB Institutional.

The kiwi is likely to trade in a range between 81.50 US cents to 82 cents on the day as "off shore investors place more emphasis on it than the local market," Kelleher said.

The New Zealand dollar rose to 63.51 euro cents from 63.35 cents as a meeting between German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras failed to reassure investors that an agreement has been reached regarding the next tranche of Greece's bailout.

Merkel's visit came as the IMF forecasts predict Greece will miss the five-year debt reduction goal that underpins the nation's bailout.

Ministers from the wider European Union meet on Wednesday.

There is no significant New Zealand set for release today. The accommodation survey for August will be release on Thursday as well as the food price index for September from Statistics New Zealand. That's followed by the ANZ-Roy Morgan Consumer Confidence and Bank of New Zealand performance manufacturing index set for release on Thursday afternoon.

The New Zealand dollar fell to 80.10 Australian cents from 80.34 cents and decreased to 64 yen from 64.46 yen. The kiwi rose to 51.11 British pence from 50.74 pence.

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