NZ dollar eases slightly, international backdrop volatile

The New Zealand dollar eased in early morning trading a day after the Reserve Bank of New Zealand cut the official cash rate (OCR) by 50 basis points to 2.5 percent.

Overnight the euro was weak after a cut in Spain's credit rating kept euro zone debt problems in focus. The US dollar strengthened on the renewed euro zone worries and oil prices tumbled. World stocks and commodities also sank after an unexpected Chinese trade deficit increased concerns about the global economy.

The NZ dollar was at US73.42c at 8am, which was down from US73.60c at 5pm yesterday. It fell from US73.92c to US73.31c on the rate cut yesterday, which had largely been factored in by the market as a reaction to the Christchurch earthquake. Media reported today that the rebuilding of Christchurch could costs as much as $30 billion.

Westpac said the risk appetite fell sharply overnight, fuelled by China's trade deficit and Moody's downgrading of Spain to Aa2 with a negative outlook.

The NZ dollar was surprisingly resilient overnight and found support around US73.40c.

Today's session will be dominated by a swag of data from China this afternoon and investors are waiting for US retail sales data is due tonight.

The Reserve Bank is expected to keep the cash rate unchanged for most of this year, but traders are already focusing on inflation pressures and the idea that rates will eventually have to rise again to contain inflation.

"Looking ahead, we think it is important to keep an open mind on future policy settings given the significant uncertainty that surrounds the economic outlook," Deutsche Bank said.

"Whilst we think that policy is now likely on hold for the remainder of this year, we can't rule out the possibility that a modest re-tightening takes place late this year if today's policy action and those put in place by the Government result in a swifter upswing than presently seems likely."

The NZ dollar was at A73.34c at 8am from A73.17c at 5pm yesterday.

It rose to 0.5320 euro at 8am from at 0.5303 euro at 5pm yesterday and eased to 60.85 yen from 60.95 yen.

The trade weighted index was little changed at 65.22 from 65.17 yesterday.