NZ dollar gains as Eurozone recovery beckons, US retail sales disappoint

Friday 14th August 2009

The New Zealand dollar gained as the Eurozone economy shrank less-than-expected, raising the prospect of an early recovery in the region, while U.S. retail sales unexpectedly fell month, encouraging investors to exit the greenback.

Eurozone gross domestic product shrank 0.1% in the three months ended June 30, one-fifth of the expected 0.5% contraction forecast by economists. Germany and France climbed out of recession, with both economies expanding 0.3%. Retail sales in America shrank 0.1% in July from a month earlier, well below the 0.8% growth expected, bolstering support for commodity currencies, such as the Australian and kiwi dollars. New Zealand retail trade data for the second quarter is expected to be little changed from the previous quarter, according to a Reuters survey.

“The Eurozone data was better, and the U.S. data was slightly weaker, (dragging on the greenback), so the kiwi took the path of least resistance,” said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia. “Importers should be tapping the current highs in the kiwi.”

The kiwi jumped to 67.92 U.S. cents from 67.65 cents yesterday, and gained to 63.13 on the trade-weighted index, or TWI, a measure of the currency versus a basket of trading partners, from 62.98. It rose to 47.53 euro cents from 47.41 cents yesterday, and dropped to 64.75 yen from 65.06 yen. It increased to 80.54 Australian cents from 80.41 cents yesterday.

Kelleher said the currency may trade between 67.50 U.S. cents and 68.25 cents today, with the retail data the big event for the kiwi dollar.

“Unless retail sales are untoward, it should stay in a range,” he said. Housing data will probably show property prices continued to stabilise in New Zealand last month when the Real Estate Institute releases its latest survey.

Last month, central bank Governor Alan Bollard said there were signs of recovery in the property sector, but cautioned against households resuming their “borrow and spend” habits, a sentiment reiterated by Finance Minister Bill English earlier this week.

Australian central bank Governor Glenn Stevens testifies before the Federal Parliament today, and he’s expected to reiterate his neutral stance on monetary policy settings without giving too much away around when the bank will start hiking rates.

The Federal Reserve Bank of New York dismissed suggestions it intervened in foreign exchange markets in the second quarter after the greenback’s trade-weighted value fell 6.6% over the period.

Gains in emerging markets’ currencies could prompt their countries’ central banks to intervene in the currency markets, while others, including the New Zealand and Canadian central banks, had stepped up rhetoric around the impact of a strong currency, the Fed said.

Businesswire.co.nz

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