NZ dollar trades near 7-year high vs. yen before services, retail data

Monday 17th November 2014

The New Zealand dollar held near a seven year high against the yen before service sector and retail sales figures that are expected to show the domestic economy continues to grow at pace.

The kiwi traded at 92.23 yen at 8am in Wellington, little changed from late New York trading on Friday, when it reached 92.24 yen, the highest since 2007. The local currency traded at 79.15 US cents, little changed from New York, when it touched 79.38 cents.

The kiwi has gained against a broadly weaker yen amid speculation Japanese Prime Minister Shinzo Abe will call an election for next month, seeking a mandate for unpopular policies including an increase in sales tax. Traders are also awaiting gross domestic product figures for Japan today, expected to show that the economy grew an annualised 2.2 percent in the third quarter. Local data due for release today includes the performance of services index and retail sales volumes for the third quarter, which are expected to show growth of 0.9 percent from three months earlier, and a gain of 4 percent from a year earlier, according to a Reuters survey. That would be faster than the second quarter annual rate of 3.8 percent.

"Although both will likely confirm the services side of the economy is on a solid footing, this will be unlikely to push OCR expectations higher," said Kimberly Martin, senior market strategist at Bank of New Zealand. "For that, the market needs to see firm evidence of strong growth is breeding inflation. We expect it will be well into next year before we get compelling evidence on this front."

Martin said the kiwi is likely to meet resistance at about 79.80 US cents and find support should it fall as far as 78.40 cents.

Finance Minister Bill English said on the sidelines of the G20 meeting in Brisbane that he expects inflation in New Zealand will pick up once pressures in the labour market emerge. Annual inflation is currently at 1 percent, the bottom of the central bank's 1 to 3 percent target range.

“We are all just adjusting to the fact that New Zealand inflation is lower than we expected,” English said. “At the moment there is a fair bit of work going on to try and untangle why it is that we’ve got pretty significant growth” with little inflation.

The trade weighted index was at 78.38, having reached 78.45 in New York on Friday. The kiwi traded at 50.45 British pence from 50.59 pence in New York.

The local currency fell to 63.17 euro cents from 63.32 cents and fell to 63.01 euro cents from 63.21 cents yesterday, and dropped to 90.34 Australian cents from 0.52 cents.

BusinessDesk.co.nz

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