KEY POINTS:
The New Zealand dollar picked up from a 6-1/2-year low against the Australian dollar and made ground on a strengthening greenback today after mixed terms of trade data.
Early today, the kiwi dropped to around US75c - its lowest level against the United States currency in nearly five months - but it recovered to end the session on US75.83c against US75.62c at 5pm yesterday.
During the overnight session the NZ dollar also dipped to around A79.15c - the lowest level against the aussie since November 2001 - before lifting to A79.83c by the close, just slightly up on the A79.68c at 5pm yesterday.
The US dollar made heavy gains against the euro and hit a 3-1/2-month peak versus the yen after Federal Reserve Chairman Ben Bernanke continued his tough talk on inflation, boosting expectations of higher interest rates.
He said the US central bank would resist rising inflation expectations and added that the latest surge in energy costs was stoking price pressures.
He said the risk of a sharp downturn in the US economy had receded, sending US bond yields soaring and putting the euro on track for its biggest two-day decline against the greenback in three years.
Meanwhile, economists here said the risk of recession had increased after data showing export volumes contracted 3.5 per cent in the March quarter and house sales plummeted 53 per cent in May on a year earlier.
However, Statistics New Zealand said the terms of trade index, measuring the amount of imports a fixed amount of exports buys, rose 4.1 per cent in the March quarter to a 34 year high. That was well above expectations of a 0.3 per cent rise.
Export volumes fell as a result of the drought and will impinge on March quarter GDP data.
"You'd have to say that the chances of recession are increasing," Mark Walton, BNZ economist said.
Economists believe data on June 27 will show the economy contracted in the first quarter and they also see a risk of a further contraction in the second quarter, with Westpac economist Donna Purdue predicting a 0.5 per cent in the second quarter.
The housing data had supported that view.
The outlook of falling growth combined with falling interest rates pointed to the kiwi heading lower, dealers said.
BNZ currency strategist Danica Hampton said the past few sessions had illustrated the sharp contrast between the outlook of the Reserve Bank and that of most other central banks.
She said that while onshore customers were busily hedging earnings and assets, a mix of macro funds, momentum funds and some sovereign accounts were sellers.
The NZ dollar trade weighted index ended on 67.78 from 67.69 yesterday.
Reuters currency rates:
NZ dlr/US dlr US75.41c US75.62c
NZ dlr/Aust dlr A79.83c A79.68c
NZ dlr/euro 0.4871 0.4854
NZ dlr/yen 81.09 80.70
NZ dlr/stg 38.60p 38.40p
NZ TWI 67.78 67.69
Australian dollar US94.46c US94.88c
Euro/US dollar 1.5477 1.5576
US dollar/yen 107.48 106.76
- NZPA
