Weaker than expected GDP data triggered a New Zealand dollar selling wave today that pounded the currency nearly one US cent lower in frenetic, heavy trading.
Minutes after Statistics New Zealand announced the economy had contracted 0.1 per cent in the December quarter, instead of growing 0.2 per cent as forecast, the kiwi was dumped over half a cent.
It recovered a little, then a new burst of selling was spurred by Finance Minister Michael Cullen who said in notes for a speech delivered in Napier that the downward slide was set to continue.
"The trigger for the move was the negative GDP number," said BNZ chief dealer Mike Symonds.
He said the first contraction in the economy in over five years fuelled expectations "the Reserve Bank is going to have cut interest rates sooner than some envisage".
"This is just adding fuel to fire and comes at the time when there is a lot of suspicion the economy is slowing rapidly."
The timing of Dr Cullen's comments was coincidental. He said caution was needed about how far the currency would depreciate.
The exchange rate had at last "come unstuck from the unrealistic heights" it had sat at since 2003, he said.
"Since peaking just over 74 US cents last year, and hovering around the 70 cents mark for several months, it now appears firmly headed below US64 cents," Dr Cullen said.
"There certainly appear to be sufficient downward pressures to maintain that trend."
Dr Cullen said he was not prepared to speculate how fast or how far the dollar would fall.
Some of his comments were well out of date by the time he delivered them. The kiwi sank to a low of US61.30 today -- 10 per cent below where it began the month. Dealers were talking about it soon having a number beginning with five.
"The comments came at a time when the currency was already under pressure, so it in part contributed to the weakness of the kiwi," said Mr Symonds.
The fall would be good news for exporters, but would increase the price of imports, boosting inflation and reducing household disposable incomes.
The New Zealand dollar has fallen over 14 per cent from this year's peak.
The drop has not been confined to the US dollar. Against the Australian dollar, it has plunged from A93 at the start of the year to A86.62c and the trade-weighted index has fallen 10 per cent to 63.92.
ANZ National chief dealer Murray Hindley said the GDP figure was just a continuation of a series of bad economic data that was adding to bearish sentiment towards the kiwi.
Yesterday, current account figures for the December quarter revealed the country spent $13.7 billion more than it earned in 2005 -- the second equal worst deficit on record as a ratio of GDP.
Mr Hindley said that although the market was short the kiwi - traders had sold currency on the expectation of buying it back later at a lower level - momentum traders had smashed it lower.
Mr Symmonds said it seemed there would be little respite for the kiwi although it had come off a long way in a short time and could consolidate before heading lower.
"It looks like we may have an attack on that US60c level."
The kiwi closed ended on US61.54c -- 3.3 per cent lower than last Friday.
The Australian dollar was also under pressure, dropping to US71.11c from US71.80c.
Rates:
5pm today 5pm Thursday
NZ dlr US61.54c US62.35c
NZ dlr/Aust dlr A86.62c A86.9c
NZ dlr/euro 0.5145 0.5180
NZ dlr/yen 72.62 73.02
NZ dlr/stg 35.48p 35.81p
NZ TWI 63.92 64.48
Australian dollar US71.11c US71.80c
Euro/US dollar US1.1968 US1.2053
US dollar/yen 117.94 116.94
- NZPA
<EM>Currency:</EM> Lower after negative GDP data
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