Dollar drops after weak Chinese manufacturing figures, hawkish Fed minutes

The New Zealand dollar dropped in local trading after weaker-than expected Chinese manufacturing figures raised concern about the strength of the regional economy, and after minutes to the Federal Reserve's last policy meeting were more hawkish than some in the market were thinking.

The kiwi dropped to 82.54 US cents at 5pm in Wellington from 83.02 cents at 8am and 82.99 cents yesterday. The trade-weighted index fell to 77.53 from 77.83 yesterday.

The HSBC purchasing managers' index showed a preliminary reading of 48.3 in February, below market expectations, and indicating Chinese manufacturing shrank in the month. The slowdown in Chinese manufacturing comes at the same time the world's second biggest economy financial system contends with heightened risks to its financial system.

The Chinese data followed the Fed minutes earlier today, which underpinned strength in the greenback by scotching speculation the US central bank was considering slowing down its pace of printing new money.

"First we had the US dollar strengthen after the Fed minutes this morning, then we got the second wind when the HSBI preliminary PMI was exceptionally weak for China," said Stuart Ive, senior client adviser at OMF in Wellington. "The kiwi is towards the midpoint against the US dollar, and if we cross over that and went lower, that starts to open up doors to push to a lower number."

Manufacturing figures in the US and Europe during Northern Hemisphere trading will be watched for any signs of a global slowdown in industrial production, which would sap investors' appetite for risk-sensitive assets, Ive said.

"One has to think we may see a weaker kiwi in the coming week," he said.

Government data today showed New Zealand producer prices fell in the fourth quarter as weak demand for power led to lower electricity prices, while a Roy Morgan-ANZ survey showed consumer confidence slipped from a seven-year high as inflation expectations firmed.

The local currency fell to 84.16 yen at 5pm in Wellington from 84.79 yen yesterday, and increased to 92.28 Australian cents from 92.11 cents. It declined to 60.01 euro cents from 60.31 cents yesterday, and slipped to 49.50 British pence from 49.75 pence.

(BusinessDesk)