Kiwi slides to 3-month low after unemployment jump

BUSINESSDESK: The kiwi fell to a three-month low after the country's unemployment rate unexpectedly rose in the first three months of the year, raising the possibility of a rate cut by the Reserve Bank.

It fell to 80.58 US cents at 5pm from 81.06 cents at 8.30am, and was down from 81.44 cents yesterday.

The trade-weighted index declined to 71.79 from 72.35.

New Zealand's currency dropped as low as 80.43 US cents, the lowest level since January 25 and briefly breaking out of a 2 US cents band it has been trapped in for the past two months - the longest stretch of trading in a range that narrow since September 2006.

Government figures showed the unemployment rate rose to 6.7% in the three months ended March 30.

That was more than the 6.3% rate forecast by the Reserve Bank, and is the latest piece of data to come up short of the central bank's expectations.

"The employment data shows a situation where half the economy is quite weak, but Christchurch is quite strong," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional.

"The kiwi is looking heavy against the US and the crosses."

Traders are betting the central bank may cut the official cash rate from its record-low 2.5%, pricing in a reduction of 3 basis points in the coming year, according to the Overnight Index Swap curve.

Mr Kelleher said the kiwi may trade between 80.25 US cents and 81 cents in the Northern Hemisphere trading session.

The European Central Bank meets overnight in Barcelona, Spain, and investors will be looking for any commentary on stimulating the euro-zone region’s as fiscal austerity measures start to bite on the members’ economies.

That comes ahead of this weekend's general election in Greece, where the zone will be watching to see whether the next elected government will ratify the austerity measures the Mediterranean nation needs to implement to secure its International Monetary Fund bailout.

The kiwi fell to 78.19 Australian cents from 78.71 cents yesterday, and declined to 64.65 yen from 65.46 yen.

It decreased to 61.33 euro cents from 61.59 cents yesterday, and dropped to 49.81 pence from 50.16 pence, the first time it has dropped below 50 pence since December 28.