NZ dollar may be driven lower

China's growth data is expected to show a 7 per cent annual increase in gross domestic product. File photo / Greg Bowker

All eyes on dairy auction and first-quarter growth report from China.

The New Zealand dollar remains under downward pressure as the market awaits China's first-quarter GDP report today and the next GlobalDairyTrade (GDT) auction - both of which currency strategists say have the potential to drive the kiwi lower still.

China's growth data, due this afternoon, is expected to show a 7 per cent annual increase in gross domestic product in the first quarter, according to a Reuters poll, which would be the slowest pace since the same period in 2009.

The GDT auction, the results of which are due tomorrow, is expected to show another decline, but not as big as the 10.8 per cent fall at the last auction a fortnight ago.

A worse-than-expected result from either event is expected to be bearish for the New Zealand dollar, but not enough to knock it out of its recent US73c to US76c range.

Peter Cavanaugh, a senior client adviser at Bancorp Treasury Services, said a nervous wait lay ahead for China's data release.

"Across the board, the influences are the US dollar, Australian iron ore prices and China, the latter two are closely linked," he said. Australian iron ore prices have slumped on the back of a sharp reduction in demand from China, which has cast a pall over Australia's mining-centric economy. While the kiwi faced some short-term challenges, analysts said the currency was not a bearish one-way bet.

"New Zealand is still an island of yield and growth," Cavanaugh said.

The Australian and New Zealand dollars fell sharply on Monday after data showed China's export sales contracted 15 per cent in March from the year before, while imports shrank 12.7 per cent, raising concerns about weak domestic demand.

The kiwi went from US75.40c just before the data's release to US74.80c, then on to US74.20c before staging a partial bounce-back to US74.68c in late trading yesterday.

But in the big picture, the currency remained confined to a US73c to US76c range. BNZ senior market strategist Kymberly Martin, pointing to a positive quarterly survey of business opinion for March, said a break of either side of the range did not appear imminent.

"Once again, the market was reminded that the New Zealand economy is on a good footing," she said.

Nevertheless, tomorrow's GDT auction could be a catalyst for further selling, as would a drop in China's GDP growth to levels under 7 per cent, strategists said.

The World Bank, in its latest East Asia Pacific Update, said a sharp slowdown in China would hurt commodity exporting countries such as New Zealand and Australia.