The New Zealand dollar shed more than half a US cent on weaker-than-expected consumer price index (CPI) data yesterday.
The kiwi fell about 60 basis points to US83.46c but recovered to US83.54c by 5pm. That compared with US84.10c at 8am and US83.93c at 5pm on Thursday.
The trigger was news that the CPI fell 0.2 per cent in the December quarter when the market consensus was for a 0.1 per cent rise.
"Financial markets seemed to react to the fact that annual inflation was outside the Reserve Bank of New Zealand's 1 to 3 per cent target range for a second quarter," Westpac economists said.
The two-year swap rate fell three basis points to 2.79 per cent.
The data confused the outlook for interest rates because the Reserve Bank had been expected to hold the official cash rate at 2.5 per cent for most of this year before raising it. Weak inflation data raised the prospect of a rate cut.
The kiwi firmed on news that China's gross domestic product increased by 7.8 per cent in 2012, down from 9.3 per cent in 2011 as the data also showed that the economy picked up pace in the last three months of the year.
The kiwi was at A79.42c at 5pm, slightly down from A79.86c at 5pm on Thursday.
It was at 75.18 from 74.11 at 5pm on Thursday, and was 62.41c from 63.19c and 52.27p from 52.48p. The trade-weighted index was at 75.25 from 75.40.