NZ dollar TWI slips from record on slower quarterly growth than expected

Thursday 19th June 2014

The trade-weighted index of the New Zealand dollar, or TWI, declined from a record after government data showed slower than expected economic growth in the first quarter.

The TWI fell to 81.08 5pm in Wellington from a record 81.29 before the release, though was still up from 80.82 yesterday. The kiwi slipped to 87.13 US cents at 5pm from 87.23 cents at 8am this morning, paring gains from 86.58 cents at 5pm yesterday.

New Zealand's gross domestic product grew 1 percent in the three months ended March 31, from an upwardly revised 1 percent gain in the fourth quarter, slightly below the Reserve Bank's 1.1 percent expectation and the 1.2 percent expected in a Reuters poll of economists. Still, the economy grew 3.3 percent in the year ended March 31, ahead of a forecast 3.1 percent and supporting the central bank’s view that it must press on with interest rate increases to keep inflation at bay.

"Initially the headline number looked like it was less than expected, but it was sort of backward revisions which helped lift things a little," said Alex Hall, head of dealing at HiFX. "The TWI keeps climbing and is a difficult one to contain."

Before the local data, demand for the US dollar declined after the Federal Reserve revised its forecast for US economic growth in 2014 to between 2.1 percent and 2.3 percent, from an earlier forecast of around 2.8 percent to 3 percent, and lowered its projections for long-term interest rates by about 25 basis points. Offsetting the lower long-term rates, the Fed increased its short-term rate hike expectations for 2015 and 2016 and reduced its monthly bond-buying programme.

"Today is all about the US story and the Fed tapering more as expected and everything is strengthened more against the dollar again," HiFX's Hill said. "From a kiwi perspective, markets will be watching very closely if it gets above 87.50 US cents again. It looks more likely than not at the moment, because it has stayed so elevated for so long."

The kiwi fell to 92.64 Australian cents at 5pm from 92.82 cents this morning, and 92.74 cents yesterday. The local currency edged lower to 88.81 yen from 88.89 yen at 8am and was up from 88.55 yen yesterday.

The New Zealand dollar was little changed at 51.27 British pence from 51.33 pence this morning, and up from 51.05 pence yesterday and traded at 64.11 euro cents from 64.19 cents this morning, and 63.92 cents yesterday.

BusinessDesk.co.nz

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