NZD slides after Fed flags tapering QE, weak local GDP, China slowdown

The New Zealand dollar fell, hit by a triple-whammy of local first-quarter growth coming in at half what economists were expecting, a slowing manufacturing sector in China and the Federal Reserve signalling plans to wind back its bond-buying programme.

The kiwi fell to 78.54 US cents at 5pm from 78.84 cents at 8am, and 79.88 cents yesterday. The trade-weighted index sank to 73.74 from 74.12 yesterday.

Drought across the North Island caused held back New Zealand's economy in the first quarter, with gross domestic product growing 0.3 percent in the three months ended March 31, half the 0.6 percent rate predicted in a Reuters survey of economists.

Weaker than expected Chinese manufacturing figures added to the kiwi's woes, sending it lower after the HSBC manufacturing Purchasing Managers' Index dropped to 48.3 in June, missing economists' forecasts.

Traders were already downbeat on the kiwi after Fed chairman Ben Bernanke said the central bank may reduce its $US85 billion a month bond buying programme this year and end it next year should the world's largest economy continue to improve.

The Federal Open Market Committee said at the conclusion of a two-day meeting in Washington that risks to the US economy have decreased, as they lowered forecasts for unemployment and inflation this year.

"This is definitely a correction towards what most people think is fair value," says Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. "Most people accept somewhere in the 70s (US cents) is where the export sector should be able to live."

He says the local currency probably wwill not move too much further with most investors having taken their positions after the Fed meeting, though as long as markets remain volatile, the "kiwi and Aussie are going to struggle".

The kiwi gained to 84.87 Australian cents, having earlier touched a four-year high 85.03 cents, from 84.16 cents at 5pm in Wellington. It was little changed at 76.13 yen from 76.09 yen yesterday.

It slid to 50.84 euro cents from 59.65 cents yesterday and weakened to 59.21 British pence from 51.09 pence.

(BusinessDesk)