NZ dollar recovers from drop as PM hopes for interest rate fall

Photo / Dean Purcell

The New Zealand dollar recovered after diving when Prime Minister John Key said a drop to the official cash rate (OCR) would be useful.

The NZ dollar fell fast from around US73.80c against the greenback, where it was at the end of trading on Saturday, to near US73.40c. That was close to an 11-week low reached early on Saturday.

It recovered to be US73.75c at 5pm today from US73.79c at the same time on Friday.

It was the second time in less than a week that comments from Mr Key were followed by a rapid decline in the NZ dollar.

Last Wednesday, Mr Key said the market had priced in a cut to the OCR and it "would probably be my expectation, that the Reserve Bank would cut".

Many economists are expecting Reserve Bank Governor Alan Bollard to cut the OCR from 3 per cent to 2.5 per cent on Thursday in response to the devastating earthquake in Christchurch on February 22.

BNZ's economists said today that they did not don't envy the Reserve Bank's task.

"It could reasonably decide on any number of OCR and rhetoric combinations, for any number of reasons.

"With this in mind, it would be a brave person to punt on the outcome on the day, especially at a time when emotions are running high from the earthquake and plenty of pressure from financial markets, and arguably the political."

While Westpac said today that negative gross domestic product growth in the March quarter was virtually assured.

"And there is little prospect of a better performance in the June quarter. Our annual GDP growth forecast for the year to June 2011 is now 0.5 per cent. We expect job losses associated with the earthquake will cause the unemployment rate to rise to 7 per cent from 6.8 per cent currently."

The NZ dollar rose to A72.80c from A72.50c at 8am - its lowest level in 18-1/2 years - having been around A72.79c at 5pm on Friday.

The US dollar was on the backfoot today after posting losses during the weekend when a solid US February jobs report did little to alter expectations for Federal Reserve monetary policy.

Nonfarm payrolls increased 192,000 in February, topping forecasts of 185,000 jobs. The unemployment rate dipped to 8.9 per cent, the lowest since April 2009, compared with 9 per cent in January.

While the data sent a strong signal the US labour market recovery has become self-sustaining, analysts said the number was still close to forecasts, disappointing investors who had hoped for an even stronger report.

The NZ dollar was at 0.5276 euro at 5pm from 0.5250 euro at 8am at 0.5284 at 5pm on Friday, and at 60.59 yen from 60.47 yen at 8am and from 60.76 yen on Friday.

The trade weighted index was at 65.01 at 5pm from 65.07 at the same time on Friday.

- NZPA