Kiwi pares gains on wider current account deficit

BUSINESSDESK: The New Zealand dollar pared gains from a seven-week high after the current account deficit widened more than expected in the first quarter.

Traders are also awaiting the Federal Reserve's monetary policy meeting, which may unveil extra stimulus for the world's biggest economy.

The kiwi fell to 79.49 US cents at 5pm from 79.75 cents just before 8am, and was up from 79.31 cents yesterday.

The trade weighted index was little changed at 71.59 from 71.63 yesterday.

New Zealand's current account deficit widened to $2.8 billion in the three months ended March 31, according to government figures, for an annual deficit of $9.7 billion or 4.8% of gross domestic product.

That was worse than the expected $1.1 billion quarterly gap and annual deficit of $9.4 billion, sapping investor appetite for the kiwi.

The balance of payments comes ahead of tomorrow's first-quarter GDP data, which is expected to show New Zealand's economy grew 0.6%.

"The weakness in commodity prices is there to see in the export side of things," said Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney.

"We saw the kiwi drift lower after the current account was a bit bigger than expected but that could pull back tomorrow if GDP is better than the market is expecting."

That comes as markets prepare for the Federal Open Market Committee's monetary policy meeting, which markets are betting will introduce more US stimulus.

"The main driver for the kiwi will be what comes out of the Fed meeting tomorrow," Mr Tennent-Brown said.

"We think the US dollar will be a little firmer, which means the Aussie and the kiwi will be a little weaker," he said, referring to the trans-Tasman currencies.

Markets are also waiting on the negotiations between Greek policy parties to form the next government.

The front-runners New Democracy and Pasok, which support harsh budget cuts in return for a regional bailout, had three days to reach a deal which is likely to be completed tomorrow in Greece.

German Chancellor Angela Merkel has been coming under increasing pressure to ease off her strict austerity line as it becomes more likely that Greece will renegotiate the terms of its bailout.

The kiwi fell to 62.70 euro cents from 62.87 cents yesterday, and was little changed at 50.53 pence from 50.5 pence.

It dropped to 78.03 Australian cents from 78.22 cents yesterday, and was little changed at 62.70 yen from 62.67 yen.