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NZ dollar gains after US manufacturing unexpectedly contracted last month

Tuesday 4th June 2013

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The New Zealand dollar gained against the greenback after a report showed US manufacturing unexpectedly contracted in May, denting speculation the Federal Reserve will end stimulus soon.

The kiwi rose to 80.98 US cents from 79.63 cents at 5pm yesterday. The trade-weighted index increased to 75.60 from 74.82 on Friday in New York.

The US Dollar Index, which measures a basket of currencies against the greenback, dropped after a report showed US manufacturing unexpectedly contracted in May, indicating the industry will provide little support for the world's largest economy. That damped suggestions the Fed will reduce its economic stimulus any time soon.

"When you have data points like this, it will remind the markets that the US still has quite a long way to go in terms of data improvement. The debate is a bit broader again," said Kymberly Martin, a strategist at Bank of New Zealand. "It reinforces the view that we have that the kiwi is not on a one way path south."

BNZ expects the New Zealand dollar to trade in its recent range of 79.50 US cents to 81.80 cents this week.

Traders will be eyeing non-farm payrolls data on Friday in the US as the Fed has singled out labour market improvement as a key indicator, Martin said.

The US dollar index dropped to a three-week low of 82.428 after the manufacturing report, and was recently at 82.694. The report showed manufacturing declined to nearly a four-year low of 49 in May, compared with an expected expansion of 51.

The local currency was little changed at 82.81 Australian cents from 82.70 cents at 5pm yesterday. The Reserve Bank of Australia is expected today to keep its benchmark interest rate at a record low 2.75 percent. The decision will be published at 4:30pm New Zealand time

The kiwi advanced to 80.49 yen from 79.99 yen at 5pm yesterday. It gained to 61.78 euro cents from 61.17 cents yesterday and rose to 52.74 British pence from 52.32 pence.

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