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NZ Dollar Rebounds From Four-Month Low On Back Of Aussie

Fuseworks Media
Fuseworks Media

Wellington, May 16 NZPA - The New Zealand dollar rebounded nearly a cent in overnight trading, recouping losses in the wake of weak retail trade figures yesterday that sent it to a four-month low.

At 8am, it was buying US76.35c compared with yesterday's close of US75.65c.

The kiwi made gains across all currencies except a resurgent Australian dollar which helped pull up the kiwi.

Yesterday, the trade-weighted index sank to an eight-month low of 68.44 but by 8am today it had recovered to 67.96.

The aussie cross rate slipped to A81.09c from A81.19c as the Australian dollar jumped a full US cent to US94.15c.

BNZ currency strategist Danica Hampton said that given the recent string of shocking NZ economic data it was not surprising traders are getting excited about the prospects of a June or July rate cut.

"While this cannot be completely ruled out, we still think the most likely timing of the first rate cut in September.

"By then the Reserve Bank will have enough evidence to judge whether the required slowdown is locked and loaded, or whether shoots of a recovery might be showing.

"In the end, it is simply not enough to see a temporary moderation and continued slow-down is needed to provide genuine relief to core inflation."

She said the Australian dollar was lifted by rumoured sovereign demand and flows reportedly related to China's bid for Rio Tinto.

The rapidly deteriorating local economy would see the kiwi continued to slide against the US and Australian dollars.

In major currency trading, the yen rose as investors reduced demand for riskier assets such as stocks after a series of weak US economic data added to anxiety over the country's growth picture.

Analysts said while market indicators pointed to the Federal Reserve being close to the end of its interest rate cutting cycle, there were nagging doubts whether the economy would be able to cope without further policy easing.

Figures showed factory activity in the US mid-Atlantic region shrank for a sixth straight month in May, while manufacturing in New York State also declined this month, according to reports by regional Federal Reserve banks.

US interest rate futures continued to signal the expectation the Fed would raise the benchmark federal funds rate by a quarter point by the end of the year to 2.25 percent. They were pricing a 92 percent chance that the central bank would leave rates steady in June.

The euro rallied in overnight trade, buoyed by data showing strong first-quarter growth in France and Germany, but the market's enthusiasm was dampened by ECB chief Jean-Claude Trichet's warning that the pace might not be as flattering in the months ahead.

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