The New Zealand dollar pushed up on Friday, helped by a weaker U.S. currency and after better-than-expected gross domestic product data suggested the economy will only suffer a mild recession.

The kiwi rose about half a cent after data showed the economy contracted by a seasonally adjusted 0.2 percent during the second quarter, better than the 0.5 percent drop forecast by economists in a Reuters poll.

The data confirmed the economy was in its first recession in over a decade but did little to alter the interest rate outlook and investors quickly shifted their focus back to the U.S. financial turmoil.

“Currencies are trading off global events,” said Westpac market economist Michael Gordon.

At 0455 GMT the kiwi was at $0.6870/80 compared with $0.6857/63 in late local trade on Thursday and around $0.6825 before the GDP data was released.

U.S. dollar fell against the yen and the euro after Congressional leaders said an agreement over the U.S. government’s proposed $700 billion bailout plan could take until the weekend following a meeting with President George W. Bush. [ID:nSP335584]

“The market isn’t really settled on how it should be responding to this bailout plan and whether it should mean a weaker or a stronger U.S. dollar so it’s left the New Zealand dollar in a limbo,” Gordon said.

Statistics New Zealand said the contraction in the second quarter was led by weaker consumer spending and lower dairy exports and followed a 0.3 percent drop in the first quarter.

The economy is expected to shrink again in the July-September quarter, before picking up, as the housing market continues to cool in the face of tight credit conditions.

Nine of the 17 forecasters in a Reuters poll forecast the Reserve Bank of New Zealand to cut rates by a quarter point to 7.25 percent at the next review in late October while eight expected another half a percentage point cut.

“There is a strong probability that they will do a 50 basis point cut in October, but that’s very much contingent on what’s happening in financial markets,” said Shamubeel Eaqub, director of investment research at Goldman Sachs JBWere.

NZ bonds fell across the board after the GDP data, with the yield on the benchmark 10-year bond rising three basis points to 6.72 percent. Yields move inversely to prices

New Zealand will go into daylight saving on Sept. 28, with clocks going forward one hour to be 13 hours ahead of GMT.

Source: http://www.afxnews.com

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