N.Z. Dollar Posts Weekly Loss

The New Zealand dollar headed for a weekly loss after a government report signaled the economy may enter a recession, adding to speculation the central bank will cut interest rates this year.

The New Zealand currency was poised for a monthly loss as the data showed the economy contracted for the first time in two years last quarter, spurring traders to add to bets the Reserve Bank of New Zealand will slash its benchmark borrowing cost from 8.25 percent. Kiwi also weakened versus the yen as a slump in stocks spurred investors to sell higher-yielding assets funded in Japan.

New Zealand's currency bought 75.99 U.S. cents at 6:05 p.m. in Wellington compared 75.77 cents in late Asian trading yesterday and 76.11 cents a week ago in New York. The local dollar fell 0.5 percent from yesterday to 81.23 yen.

The New Zealand dollar pared its loss for the week as investors betting on a larger contraction of the economy bought back the currency to cover their wrong way bets, in a strategy known as short covering. A short position is one that benefits from a decline in the currency.

New Zealand's dollar has fallen 3.7 percent this quarter and 1.6 percent this year against the U.S. currency on signs the highest borrowing costs of any nation with a credit rating of Aaa has slowed demand in the economy and cooled inflation.

Gross domestic product fell 0.3 percent from the fourth quarter, when it gained a revised 0.8 percent, Statistics New Zealand said in Wellington today. That matched the median estimate of 13 economists surveyed by Bloomberg News. The economy expanded 1.9 percent from a year earlier.

Seven economists expect the economy also shrank in the second quarter, pushing New Zealand into its first recession since 1998.

N.Z. Dollar Posts Weekly Loss

TradingEconomics.com, Bloomberg
6/27/2008 6:51:17 AM