There was minimal collateral damage to the kiwi dollar from today's monster current account deficit.
Although it closed weaker at US62.35c from its US62.60c opening, the $13.7 billion annual deficit was exactly on economists' forecasts and selling was muted.
Yesterday, the kiwi fell below US62c for the first time since June 2004, ending on US61.90c.
The current account deficit for 2005 equated to 8.9 per cent of GDP -- the worst ratio since 1986 when it was also 8.9 per cent.
The seasonally adjusted data for the December quarter showed a small improvement in the deficit to $3.38 billion from the $3.84 billion shortfall in the September quarter.
ANZ National said the number was slightly better than expected, "though as a percentage of GDP, the current account is still a problem of course, and will remain on the radar of international investors weary of the structural imbalances here in New Zealand".
"But this data could be enough to force more of a short-squeeze in the New Zealand dollar".
A short squeeze would push the kiwi higher as traders who have sold the currency on expectations it will fall further, have to scramble to buy back New Zealand dollars.
However, dealers said that whether slightly better than expected, it was still an ugly number and kiwi sentiment would remain bearish. The kiwi has fallen 6 per cent this month and nearly 12 this year.
Tomorrow's GDP data could further dampen sentiment. Initially, economists feared the December quarter would be negative, but now they are predicting a small expansion.
The kiwi's cross rate against the Australian dollar picked up a little to A86.99c from A86.42c yesterday despite the aussie's rise to US71.80c from US71.64c.
New Zealand's trade-weighted index also rallied slightly, to 64.48 from 64.32 yesterday.
The US dollar trod water as a calm market looks ahead to next week's Federal Reserve meeting for clues on how much higher interest rate will climb.
Earlier this week the dollar bounced back against major currencies as investors saw upbeat comments on the economy and housing market from Fed chairman Ben Bernanke as a sign that rates could rise beyond next week's expected increase.
The Fed is almost unanimously seen lifting rates to 4.75 per cent from 4.5 per cent on Wednesday, but the big question is whether the central bank will raise rates to 5 per cent or higher at meetings in May and June.
With the European Central Bank also poised to raise rates further from 2.5 per cent and the Bank of Japan expected to lift them from zero by year-end, market players have become extra sensitive to shifts in the outlook for Fed credit tightening.
Rates:
5pm today 5pm Wednesday
NZ dlr US62.35c US61.90c
NZ dlr/Aust dlr A86.99c A86.42c
NZ dlr/euro 0.5180 0.5123
NZ dlr/yen 73.02 72.60
NZ dlr/stg 35.81p 35.42p
NZ TWI 64.48 64.32
Australian dollar US71.80c US71.64c
Euro/US dollar US1.2053 US1.2088
US dollar/yen 116.94 117.27
- NZPA
<EM>Currency:</EM> Kiwi survives current account deficit largely intact
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