By BRIAN FALLOW ECONOMICS EDITOR
The New Zealand dollar tumbled yesterday, losing ground not only against a strong United States dollar but an enfeebled Australian currency as well.
Having broken through key support levels at 40.20USc yesterday morning, it ended the day around 39.85USc, below 40c for the first time since November.
In part the fall was a reflection of light volumes and continued US dollar strength, as fears of a global slowdown keep investors buying the greenback in a "safe haven" effect.
"The kiwi isn't alone. The euro is under pressure again, sterling is languishing and the aussie dollar is also under pressure," said Bank of New Zealand foreign exchange manager Mike Symonds.
"But the kiwi has also lost ground against the aussie ... There is still some underlying disappointment about the December GDP data."
The kiwi at one point dropped to barely above 82Ac, having opened at 82.5c, before ending the day around 82.2c.
HSBC economist Grant Fitzner said 81.3c was a key support level (or from the Australian point of view $NZ1.215 a key resistance level for the aussie) which had been tested four times last week. Breaching that would represent a decisive break from the uptrend that has seen the New Zealand dollar appreciate 13 per cent from its low last September.
That climb attracted momentum traders, whose friend is the trend. Mr Symonds said they were now taking profits.
Mr Fitzner said there had been good reasons over the past few months to mark down the Australian dollar versus the kiwi, "but data over the next month or two will start to change that perception."
"Because virtually all of the bad news has been priced into the aussie, while most people in the market seem very much more positive about the outlook for the New Zealand economy, the risk is there will be disappointment on the New Zealand side and positive surprises on the Australian side."
For example, Australia yesterday recorded the third successive month of retail sales growing at 1 per cent or better, month on month, a better performance than New Zealand has managed.
"I'm not convinced the New Zealand economy is that much out of sync [with the rest of the world]," Mr Fitzner said.
"Sure the trade sector is looking great. You could also say that about Australia, though, and in both cases it reflects the fact that the currency is down [around] 20 per cent over the past year.
"So of course in local currency terms exports are going to look fabulous. But in both cases the domestic economy is fairly soft."
Deutsche Bank currency strategist Richard Yetsenga said it appeared more likely now that markets would start pricing a cyclical re-convergence between Australia and New Zealand.
Confidence indicators were flattening out, he said, and the period of maximum improvement in the trade account might be coming to an end.
But BNZ economist Craig Ebert argued that Friday's GDP figures were not as bleak as the 1.2 per cent contraction in domestic demand appeared at first sight.
A drawdown of stocks, reversing a build-up in the September quarter, had cut half a percentage point off the quarter's GDP growth. Excluding that, and the volatile residential investment component, domestic demand was flat in the December quarter after expanding 1.8 per cent in the September quarter.
Greenback drowns kiwi in its wake
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