Kiwi recovers from fast dive

File 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 yesterday from US73.79c at the same time on Friday.

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

Last Wednesday, 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 economists said yesterday that they did not 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."

Westpac said 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 in 18 years - having been around A72.79c at 5pm on Friday. It was at €0.5276 at 5pm from €0.5284 on Friday, and at 60.59 from 60.76 on Friday. The trade weighted index was at 65.01 from 65.07 on Friday.

- NZPA