Another horror current account number saw the kiwi dollar sold half a cent in quick time but it rebounded almost as rapidly to end the day largely unscathed.
It closed on US66.05c, slightly above yesterday's US66.02c level. It had been trading around US66.20c before the data release and was sold aggressively down to US65.66c after the worse than expected data came out.
However, US and Asian banks came into the market and the kiwi largely retraced its losses.
ANZ chief dealer Murray Hindley said the rebound was tied up with general US dollar weakness and a strong Australian dollar following dovish comment from the US Federal Reserve on interest rates.
The kiwi lost ground to the Australian dollar and other currencies.
It ended on A87.20 from A87.52c yesterday, while against the euro it fell to 0.5198 from 0.5201. The trade weighted index finished on 66.22 from 66.31.
New Zealand posted a June quarter current account deficit of $3.1 billion from a revised $2.8 billion in the March quarter. That blew the June year deficit out to $15.2 billion -- 9.6 per cent of GDP against economists' forecasts of 9.3 per cent.
ANZ economists said today's horror number raised the possibility that New Zealand's AA-plus sovereign credit rating could be at risk.
"It is difficult to see a material improvement in the deficit from here, and we are not that far away from recording a 10 per cent (of GDP) monster," ANZ said.
"While the deficit remains investment income (profit-cycle) driven, we are becoming wary that rating agencies cannot continue to turn a blind eye."
Mr Hindley said the kiwi dollar appeared to be mired in a US65.50-66.50c range despite both ends of that range being tested recently.
Next week's GDP data could give markets a clue as to which way it should go. He noted economists were now forecasting a reasonably robust number of around 0.6 per cent growth for the quarter.
In major currency trading, the US dollar fell after the Federal Reserve left interest rates on hold for the second straight time at a policy meeting and suggested inflation risks were moderating.
As widely expected, the Fed voted to keep its overnight funds rate at 5.25 per cent, the level reached in June after increases at 17 straight meetings stretching over two years.
The Fed noted several reasons to expect inflationary pressures to "moderate over time" but made clear this was a forecast and not yet reality, holding out the possibility of higher rates if needed.
"Again we're back to following every set of US economic data that comes out for any sign of inflation," said the chief trader at a European investment bank in Tokyo.
By contrast, European Central Bank officials have kept up their talk of being vigilant in tightening credit enough to keep inflation pressures contained.
The key rate in the euro zone is at 3 per cent and expected to climb as high as 4 per cent next year, while the Bank of Japan is not seen raising rates from 0.25 per cent anytime soon.
Reuters currency rates:
5pm today 5pm Wednesday
NZ dlr/US dlr US66.05c US66.02c
NZ dlr/Aust dlr A87.20c A87.52c
NZ dlr/euro 0.5198 0.5201
NZ dlr/yen 77.30 77.42
NZ dlr/stg 34.90p 35.01p
NZ TWI 66.22 66.31
Australian dollar US75.70c US75.38c
Euro/US dollar 1.2720 1.2686
US dollar/yen 117.08 117.27
- NZPA
<i>Currency:</i> NZ dollar takes collateral damage from deficit
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