Dollar down on weak GD

The New Zealand dollar fell below US70c yesterday as weaker than expected gross domestic product data reduced the perceived need for tighter monetary policy and as the United States dollar continued its recovery.

The 0.2 per cent rise in gross domestic product (GDP) in the September quarter was less than the 0.3 per cent rise the market was expecting and the 0.4 per cent rise the Reserve Bank of New Zealand (RBNZ) predicted in its December monetary policy statement.

The NZ dollar fell to US$69.72c, its lowest level since early September, but recovered to US$69.92c at 5pm. This compared with US$70.32c at 5pm on Tuesday.

The US dollar hit a two-month high of 91.86 in early Asia trade, before edging back. But the currency remained in demand, even after jumping more than 8 per cent in less than a month against the Japanese currency.

On Tuesday better-than-expected US existing home sales data helped maintain a rally in the US dollar.

The weaker New Zealand GDP figure implied that the RBNZ would not be under pressure to raise interest rates, a move that would attract investors to the currency.

"We see June 2010 as still the central case for when the tightening cycle starts. There is simply not sufficient data to warrant hiking as early as March," ANZ Bank economists said in a commentary.

The weaker GDP data came after better than expected current account data on Tuesday but economists dismissed that data as unsustainable and a product of a weak economy.

Against the Australian dollar, the kiwi eased to A$79.82c at 5pm, from A$80.07c yesterday.

The Australian dollar has fallen to US$87.65c from US$94.06c on November 16 and is near levels not seen since early October. The Australian and NZ dollars are expected to remain under pressure from a resurgent US dollar over the Christmas holiday break. The NZ dollar was €0.4908 at 5pm from €0.4919 on Tuesday and 64.12 from 64.25. The trade weighted index was at 64.32 from 64.53 at 5pm on Tuesday.

- NZPA