Kiwi extends gain ahead of retail sales, housing data

Tuesday 14th September 2010

The New Zealand dollar extended its gains ahead of local housing and consumer spending data today, after offshore markets continued to rally on upbeat Chinese data and Basel III summit over the weekend.

Economists predict New Zealanders boosted retail spending on items excluding motor vehicle-related goods 0.2% in July, according to a Reuters survey, following on from June’s 1.5% bounce, while Real Estate Institute home sales data is expected to show the property market is still in the doldrums.

That comes amid upbeat sentiment in international markets, with stocks on Wall Street and in Europe gaining on the weekend’s better-than-expected Chinese data, and softer capital requirements to be imposed on banks.

The Standard & Poor’s 500 Index rose 1.1% as investors sought riskier, or higher-yielding, assets, while the Dollar Index sank 0.4% to 81.87.

“The weekend news has given people a boost in sentiment, and that’s what has further fuelled currencies to where they are now,” said Imre Speizer, market strategist at Westpac.

“The price action suggests risk markets have got a bit of momentum behind them for a few days to come, and we’ll probably see the kiwi try to challenge its multi-month high 74 US cents from here.”

The kiwi rose to 73.38 US cents from 73.23 cents yesterday, and was little changed at 67.73 on the trade-weighted index of major trading partners’ currencies from 67.76. It slipped to 61.39 yen from 61.45 yesterday, and dropped to 78.42 Australian cents from 78.57 cents. It declined to 56.99 euro cents from 57.15 cents yesterday, and gained to 47.58 pence from 47.35 pence.

Speizer said the currency may trade between 73 US cents and 74 cents today, with offshore sentiment the major driver as markets continue to wait for the Reserve Bank of New Zealand’s monetary policy statement on Thursday.

Central bank Governor Alan Bollard is expected to keep the official cash rate on hold at 3% after a string of soft data in recent months dragged on the economy, compounded by the triggering of the government guarantee on failed financier South Canterbury Finance and the 7.1 magnitude earthquake in Christchurch. Markets have priced in 70 basis points of hikes in the OCR over the coming year, according to the Overnight Index Swap curve, after it sank as low as 15 points yesterday.

Speizer said market pricing has been very volatile over recent weeks, and while there’s a consensus that Bollard will pause for the next few months, opinions are divided as to how he will raise rates next year.

“The longer the temporary pause, the more he has to go later,” he said.

Businesswire.co.nz

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