The New Zealand dollar tumbled nearly half a cent against both the Australian and US dollars today after weak GDP appeared to diminish the prospect of another rate hike.
GDP rose slightly less than expected in the June quarter, by 0.5 per cent. Economists and forex dealers focused on the 0.4 per cent fall in private sector consumption -- the second successive quarter it has fallen.
"The slowdown domestically has given the Reserve Bank the chance to leave things on hold," said ANZ Bank's New Zealand chief dealer Murray Hindley.
"The immediate pressure for the Reserve Bank to react to strong data appears to have subsided," said Deutsche Bank chief economist Darren Gibbs.
He no longer expects the bank to tighten at its October review, as bank governor Alan Bollard threatened earlier this month.
However, Mr Gibbs predicts another upside surprise in employment data later this year which will lead to a rate hike before Christmas.
The kiwi closed on US65.25c, compared with its US65.71c level before the announcement and against US65.61c at yesterday's close.
Against the Australian dollar, the kiwi ended on A87.24c, over half a cent below its opening, but not far below yesterday's A87.38c close. The kiwi lost ground on all the crosses with the trade-weighted index ending on 65.72 from 65.94.
The Australian dollar also lost against the greenback, closing on US74.76c from US75.07c yesterday.
There is little local news for the market to focus on next week. The next big data is retail sales on October 13 and then the CPI on October 25, followed the next day by the Reserve Bank review of the cash rate.
In major currency action, tough talk on inflation from European policymakers lifted the euro to a one-week high against the yen but left it flat against the US dollar despite slower-than-expected US growth in the second quarter.
The euro hit 149.78 yen -- its highest since last breaching the 150 level on September 19 -- after ECB governing council members Axel Weber and Nicholas Garganas both signalled more interest rate hikes were needed to ward off inflation.
The ECB has lifted rates, now at 3 per cent, four times since last December and investors expect another quarter-percentage-point hike at its October policy meeting.
That sentiment boosted the euro against the low-yielding Japanese currency, which remains vulnerable to "carry trades," in which investors borrow yen cheaply then boost returns by selling them to buy higher-yielding currencies.
The dollar also climbed 0.2 per cent to 117.75 yen, and strategists said more yen weakness may be in the cards.
Reuters currency rates:
5pm today 5pm Thursday
NZ dlr/US dlr US65.25c US65.61c
NZ dlr/Aust dlr A87.24c A87.38c
NZ dlr/euro 0.5135 0.5158
NZ dlr/yen 76.35 77.06
NZ dlr/stg 34.76p 34.73p
NZ TWI 65.72 65.94
Australian dollar US74.76c US75.07c
Euro/US dollar 1.2709 1.2719
US dollar/yen 117.80 117.47
- NZPA
<i>Currency:</i> NZ dollar tumbles after weak GDP data
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