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NZ Dollar Takes Horror Current Account Number In Its Stride

Contributor:
Fuseworks Media
Fuseworks Media

Wellington, June 26 NZPA - The New Zealand dollar barely blinked today despite what was expected to be a horror current account deficit that printed even worse than anticipated.

The deficit of $2.16 billion for the March quarter compared to the median forecast of economists in a Reuters poll for a deficit of $1.66b.

The surprising bad news came despite the first actual dollar goods surplus for a March quarter, at $295 million, since 2003.

The annual deficit equated to 7.8 percent of Gross Domestic Product, down from 7.9 percent in the December year but worse than the 7.5 percent median forecast.

The data came a day after a consumer confidence survey showed confidence at a 17 year low.

The kiwi dipped initially to US75.71c from US75.83c before the announcement but it closed on US75.78c, slightly above yesterday's close.

Earlier, the US Federal Reserve left the benchmark fed funds rate at 2 percent as expected, effectively ending one of its most aggressive rate cutting campaigns to limit the economic fallout from the housing and credit crisis.

The Fed voiced greater concerns about inflation in a statement following its two-day policy meeting but also said it expects price pressures to moderate this year, helping push back rate hike expectations.

Meanwhile the euro hit a record high against the yen of 169.33 after European Central Bank officials warned about persistently high inflation rates, reinforcing expectations the ECB will boost interest rates next month.

Shuichi Kanehira, a senior trader at Mizuho Corporate Bank said the dollar was likely to stay on a downward trend against the euro as the Fed gave no hint of when it might raise rates.

The ECB is widely expected to raise rates to 4.25 percent at the next policy meeting on July 3 in a quest to combat inflation.

Mitsuru Sahara, a senior trader at Bank of Tokyo-Mitsubishi UFJ, said because the Fed is not seen rushing to boost rates amid uncertainties in the US economy and the financial sector, that should help markets stabilise and bring down market volatility.

"That should encourage yen carry trades," Mr Sahara said.

While the NZ dollar was holding its ground against the US currency it fell against the Australian dollar to below A79c for the first time in more than 6-1/2 years.

From A79.13c at 4.30pm yesterday, the kiwi briefly closed on A78.99c. The trade weighted index ended on 67.68 from 67.82.

More bad economic news is expected tomorrow in the form of GDP data. Economists expect to show activity contracted by 0.3 percent in the first quarter and a number below that figure would see the kiwi sold.

NZPA WGT Reuters sml sh

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