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NZ dollar jumps to 80 US cents as GDP expands

Thursday 21st June 2012

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The New Zealand dollar rose above 80 US cents for the first time since May 2 after gross domestic product expanded at twice the expected pace in the first quarter.

The kiwi dollar climbed as high as 80.06 US cents from 79.55 cents immediately before the figures were released. The kiwi was recently at 80.01 cents.

The local economy grew at its fastest quarterly pace in five years as good weather lifted milk production that led to greater dairy manufacturing. Gross domestic product rose 1.1 percent to almost $35 billion in the three months ended March 31, according to Statistics New Zealand. That's more than twice the 0.5 percent pace forecast in a Reuters survey of economists and almost three times the Reserve Bank's 0.4 percent projection.

"It's telling us the New Zealand economy is not dead," said Mike Jones, market strategist at Bank of New Zealand. "We are seeing a big tick in the box of recovery."

"It's not surprising in the wake of this number that we have seen a big bounce in the kiwi," Jones said. "The currency can keep rising - we are seeing signs that the global backdrop is becoming a friendlier place for the New Zealand dollar."

Traders have erased their bets that the Reserve bank will cut interest rates in the next 12 months, based on the Overnight Index Swap curve, which most recently had a reading of 1 basis point.

The data comes after the Federal Reserve extended its stimulus measures in the world's biggest economy this morning. Policymakers will expand their programme to replace short-term bonds with longer-term debt by $267 billion through the end of 2012.

The continuation of Operation Twist “should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” the Federal Open Market Committee said in a statement, following a two-day meeting in Washington.

BusinessDesk.co.nz

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