Dollar dips on Aussie political moves

The New Zealand dollar dipped briefly after gross domestic product data and was volatile after Australia's ruling Labour Party dumped Kevin Rudd in favour of Julia Gillard.

"Kiwi was volatile on the news of a new Australian prime minister but it moved in both directions," said Imre Speizer, senior currency strategist at Westpac.

The moves cancelled each out to leave the NZ dollar little changed. It was US71.26c at midday from US71.32c at 8am and US70.39c at 5pm yesterday.

It had spiked to a six-week high against the greenback around US71.60c overnight, after the United States Federal Reserve kept interest rates steady at near zero, as expected, and reiterated its pledge to keep rates low for an extended period.

The NZ dollar eased against a rising Australian dollar to A81.49c from A81.72c at 8am.

Ms Gillard is seen as having a better chance of winning an election later this year as Mr Rudd was polling poorly. Investors are eager to know if controversial policies, particularly a super tax on mining companies, will change.

News that New Zealand's gross domestic product rose 0.6 percent in the first quarter caused a tiny dip in the NZ dollar for a short time. The figure was in line with market expectations and slightly weaker than the 0.8 percent expected by the Reserve Bank of New Zealand.

Economists continue to predict the Reserve Bank will lift the official cash rate by 25 basis points in July.

"The economy is now entering its second year of recovery," ASB said.

"It is becoming increasingly clear that future growth is likely to be driven by the economy's core goods-producing sectors, in part stimulated by strong demand for exports. The recovery in global economic growth, particularly in the Asia-Pacific region, has helped boost demand for New Zealand exports and commodity prices."

Against the European currency, the NZ dollar pushed to a three-year high near 0.5820 euro, as the euro struggled on concerns about the euro zone banking system and the potential for economic stress in the area.

News that borrowing by Portuguese banks from the European Central Bank doubled in May to a record 35.8 billion euros ($NZ61.7b) highlighted bank reliance on ECB funds. By midday the NZ dollar was worth 0.5786 euro from 0.5740 at 5pm yesterday.

The NZ dollar was at 64.06 yen at midday from 63.70 at 5pm, while the trade weighted index rose to 68.40 from 67.80.

- NZPA