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NZ dollar drops after weak Australian retail sales

NZ dollar drops as weak Australian retail sales sap demand for trans-Tasman currencies

By Suze Metherell

Oct. 1 (BusinessDesk) - The New Zealand dollar fell against the greenback as weak retail data in Australia sapped investors' appetite for the trans-Tasman currencies, and as improving US data stokes demand for the world's reserve currency.

The kiwi fell to 77.77 US cents at 5pm in Wellington, from 77.91 cents at 8 am and 78 cents at 5pm yesterday. The trade weighted index rose to 76.13 from 75.98 at 5pm yesterday.

The Australian dollar fell, dragging the kiwi lower, after Bureau of Statistics data showed August retail sales edged up 0.1 percent to A$23.3 billion, below the 0.4 percent expected. The kiwi has been the hardest hit among global currencies in the past three months as demand for the greenback grows on mounting speculation the Federal Reserve will raise interest rates sooner than expected amid a strong economic recovery.

"There was disappointing news in Australia with a week sales report and we got carried along with that," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. "The overriding thing is the US trend - that remains strong but it is getting to very heady territory so as long as the US dollar keeps rising I don't think there will be too many people looking to buy the kiwi for the medium-term."

The kiwi rose as high as 89.72 Australian cents after the retail sales figures, trading at 89.60 cents at 5pm from 89.09 cents yesterday.

Westpac's Speizer said traders will be watching the upcoming GlobalDairyTrade auction closely to gauge the impact falling dairy prices will have on the New Zealand economy. Dairy prices, the country's largest export commodity, have slumped about 45 percent from a peak in February. The US-based auction will show whether prices found a base at the last auction two weeks ago, when the average wining price edged up from a two-year low.

"Right now it is something to watch closely as it has been falling very sharply," Speizer said. "The market will be taking the view they don't know what it is going to do. They'll be open to the possibilities. If it falls further they'll say 'there is no bottom in sight for this commodity', which is backed up by the Chinese economy remaining weak still, and would probably be the least surprising thing would be a further fall.

"If it bounced significantly it would be a big surprise to the market," Speizer said. "You might see a stronger reaction to the upside than a negative reaction on the disappointment."

Investors will also be watching for whether the European Central Bank will announce further stimulatory measures to avoid the region sliding into deflation after inflation slowed to an annual 0.3 percent pace in September, from 0.4 percent the previous month. The kiwi rose to 61.63 euro cents, from 61.44 cents yesterday.

The local currency gained 85.46 yen from 85.26 yen, and was little changed at 48.03 British pence from 47.97 pence.


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