Kiwi gains after weaker American data dampens tapering hopes

The New Zealand dollar gained after a report showed the US economy grew less than expected in the first quarter, easing speculation the Federal Reserve will soon start slowing monetary stimulus.

The kiwi rose to 77.91 US cents from 77.35 cents at 5pm in Wellington yesterday. The trade-weighted index increased to 73.60 from 72.98 yesterday.

The local currency has shed about 4 percent since Federal Reserve chairman Ben Bernanke said last week that he will start pulling back the central bank's $US85 billion a month bond buying this year should economic data continue to improve.

Yesterday's weaker GDP report comes after upbeat reports the previous day on durable goods orders, sales of new homes, home prices and consumer confidence.

"With the stronger US data and no continued US dollar buying, the market was exhausted and looking for a reason to pare back their US dollar longs, and they got it with a weaker GDP," says Sam Tuck, senior manager FX at ANZ New Zealand. "A lot of the forward-looking tapering factors have already been accommodated into the price so we are probably likely to get more sideways consolidation with lots of volatility."

US gross domestic product expanded at a revised 1.8 percent annual pace in the first quarter, down from a revised 2.4 percent, according to Commerce Department figures. That lags New Zealand growth of 2.5 percent.

"The New Zealand economy is still seen as a very reasonable place to invest in the short term," Mr Tuck says.

The kiwi may move above 80 US cents on weaker US economic data and test 77 US cents on stronger data, he says. "For the remainder of the next couple of days there is a slight bias higher." 

In New Zealand today, Reserve Bank deputy governor Grant Spencer is likely to warn about housing market risks in a speech at 11am, which could impact interest rates and the currency, Mr Tuck says.

The trade balance for May is scheduled for release at 10.45am and is expected to show a surplus of $400 million in the month, for an annual deficit of $520 million, according to a Reuters survey. The ANZ Business Outlook survey for June will be published at 1pm.

The kiwi rose to 84 Australian cents from 83.48 cents yesterday and increased to 76.13 yen from 75.57 yen. It jumped to 59.86 euro cents from 59.18 cents and edged up to 50.88 British pence from 50.15 pence.

(BusinessDesk)