NZ dollar drops as US manufacturing shrinks

The New Zealand dollar fell after US manufacturing activity shrank, stoking concerns global growth has stalled and amid fears the European Central Bank isn't doing enough to contain the region's debt crisis.

The New Zealand dollar fell as low as 79.21 US cents overnight, the lowest since July 25, and traded at 79.36 cents at 8am, down from 79.74 cents yesterday. The kiwi held near a two-month low at 63.16 euro cents from 63.22 cents.

US manufacturing figures showed activity shrank for a third straight month, heightening fears of a global slowdown after industrial production in China and Europe showed similar declines. That comes ahead of Thursday's ECB monetary policy review, where
President Mario Draghi will consider buying bonds with maturities of up to three years as he seeks to do "whatever it takes" to safeguard the euro.

"You would have thought the US data would have added to the signs of further quantitative easing. Instead we are waiting to hear what the ECB does and we are waiting for non-farm payrolls because that will be the lynchpin in Q3 thoughts," said Stuart Ive, currency strategist at HiFX.

"The kiwi is still weighted to the downside" with initial support around 79.20 US cents and resistance at 79.70 cents, he said.

More weakness in the US labour market may be enough to spur the Federal Reserve into announcing a third round of asset purchases, with Reuters and Bloomberg both forecasting Friday's nonfarm payrolls report to show 125,000 jobs were added in August, down from 163,000 in July.

Last week Fed chairman Ben Bernanke told central bankers at the Jackson Hole summit the regulator is ready to act to stoke economic growth.

The New Zealand dollar was little changed at 77.59 Australian cents from 77.65 cents yesterday. Australia's second-quarter gross domestic product is scheduled for release today and is expected to show the economy grew 0.7 per cent for an annual rate of 3.6 percent.

That comes after the Reserve Bank of Australia kept the target cash rate on hold at 3.5 per cent yesterday, and said capital spending in the resources sector is keeping the economy growing.

The kiwi was little changed after dairy prices rose 6 per cent to the highest level since early April in the latest GlobalDairyTrade sale. All eight products on offer gained.
New Zealand's value of building work put in place in the second is due for release today.

The New Zealand dollar fell to 62.23 yen 62.47 yen yesterday, and declined to 50.01 British pence from 50.18 pence. The trade weighted index decreased to 71.48 from 71.67.