Dollar falls on weak GDP report, strong US

The New Zealand dollar fell below US70c today 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 US69.72c, its lowest level since early September, but recovered to US69.92c at 5pm. This compared to US70.32c at 5pm yesterday.

The US dollar hit a two-month high of 91.86 yen 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 hike 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.

ASB Bank argued that revisions of quarterly growth rates since 2006 implied New Zealand had a lower rate of non-inflationary growth, suggesting the central bank should act in April to increase its official cash rate.

Goldman Sachs JBWere economist Bernard Doyle said the economy was crawling, rather than springing out of recession.

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

Against the Australian dollar, the kiwi eased to A79.82c at 5pm, from A80.07c yesterday.

The Australian dollar has fallen to US87.65c from US94.06c on November 16 and is near levels not seen since early October, Reuters reported.

Both the Australian and New Zealand dollars are expected to remain under pressure from a resurgent US dollar over the Christmas holiday break.

The NZ dollar was 0.4908 euro at 5pm from 0.4919 yesterday and 64.12 yen from 64.25. The trade weighted index was at 64.32 from 64.53 at 5pm yesterday.

- NZPA