NZ dollar gains after US GDP misses estimates

BUSINESSDESK: The New Zealand dollar increased more than 1 US cent after America’s economy expanded less than forecast in the first quarter, supporting the view the Federal Reserve has little room to move on fiscal policy.

The kiwi traded at 82.21 US cents at 8am, little changed from 82.19 cents at the close of trading in New York on Friday, though up from 81.07 cents in New Zealand on Friday.

The trade weighted index was at 72.84 from 72.79.

Higher-yielding currencies gained after US Commerce Department data showed gross domestic product in the world’s largest economy rose at an annual 2.2% rate in the first quarter.

That is down from 3% in the previous quarter and missed the 2.5% prediction in a Bloomberg survey.

The data “added fuel for the market to think that the Fed will stay in a stimulative policy”, Stuart Ive, currency strategists at HiFX, said.

“The kiwi is right at that top of its range now – technically, you might see a short squeeze in the kiwi this morning.”

At the Federal Open Market Committee’s March meeting, policy makers said they will hold off increasing monetary accommodation unless the US economic expansion falters or prices rise at a rate slower.

In January, the Fed pledged to keep interest rates near zero until at least the end of 2014.

The kiwi rose to 62.11 euro cents from 62.01 cents at the close of trading in New York and 61.50 at the close of local trading on Friday after Italy paid more to borrow at their bond auctions.

The country sold 10-year bonds at an average yield of 5.84%, compared to 5.24% at the last auction in March.

“It was closely watched and it went well but as you can expect they paid higher yields for the privilege,” Mr Ive said.

Japan and China will be closed today for bank holidays.

New Zealand’s overseas merchandise trade and building consents for March will be released by Statistics NZ this morning, while the National Bank Business Outlook will is due out this afternoon.

The New Zealand dollar rose to 78.55 Australian cents from 78.54 cents at the close of trading in New York.

The kiwi gained to 50.56 British pence from 50.53 pence and was little changed on 65.98 yen from 67.97 yen.