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NZ Dollar Rebounds Despite Soft GDP Data

Fuseworks Media
Fuseworks Media

Wellington, June 27 NZPA - The New Zealand dollar rebounded today from an overnight slump despite soft GDP data.

In a counter-intuitive move the kiwi climbed against all currencies despite news the economy shrank by 0.3 percent in the March quarter.

ANZ chief dealer Murray Hindley said it was a classic short squeeze.

The data was no worse than economists' forecasts, and the selling after was mild, traders who had shorted the kiwi were squeezed.

Short traders sell a currency on expectation they can buy back cheaper when the exchange rate is lower.

The kiwi, which had opened on US75.57c, closed on US76.05c.

Against the aussie it ended on A79.35c from its A79.04c opening. It fell overnight to around A78.75c, the lowest level in nearly seven years.

The kiwi's rise was also in spite of a pounding equity markets around the world took, lead by Wall Street which plunged 3 percent.

In recent times a fall in equities has led to a fall in the kiwi as traders flee risk.

Some economists believe the second quarter growth will be worse than the first but with that quarter almost over, the worst may be nearly over.

Westpac economist Dominick Stephens said "we've probably lived through the absolute worst of this recession.

"The third quarter should be not as bad as the second quarter. We do think the whole of 2008 is going to be a pretty sharp correction for people, particularly urban consumers."

In major currency trading, the US dollar hovered near three-week lows against the euro, weighed down by weak US economic fundamentals and renewed credit concerns after Goldman Sachs forecast more write-downs from Citigroup.

A fall in stocks and a rise in oil prices to record highs suggested to many traders that sentiment for the dollar has turned negative, despite some views that the currency will benefit from US authorities expressing support for a strong dollar.

"Sentiment for the dollar has turned bearish as a drop in stocks and record highs in oil prices reinforced worries about the financial sector and the economy," said a senior trader at a European bank.

He said the US dollar was unlikely to fall sharply in the near-term but if key levels against major currencies were hit, it could trigger heavy selling of the US currency.

Bank of New Zealand currency strategist Danica Hampton said rising risk aversion had encouraged heavy selling of NZ dollar crosses, particularly against the yen overnight.

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