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The New Zealand dollar was little changed against its Australian counterpart as sluggish consumer spending across the Tasman stoked speculation the Reserve Bank of Australia may cut interest rates deeper than initially anticipated.
The kiwi traded at 78.68 Australian cents from 78.65 cents on Friday in New York. It was little changed at 81.95 US cents at 5pm in Wellington from 82.04 cents at 8am and 81.98 cents last week.
Australia's retail trade was unchanged last month, according to government figures, falling short of the 0.4% growth expected by economists.
That has heightened expectations the RBA may have to cut the target cash rate more than anticipated to keep the nation's economy ticking over as the resources boom slowly unwinds.
Traders are pricing in 72 basis points of cuts to the 3.25% benchmark rate over the coming 12 months, according to the Overnight Index Swap curve.
"Now capex is weaker, markets are looking for stuff to take its place like consumer spending. But on the face of it, it's not going to take the job of the resources boom," says Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "There's a chance it [the kiwi] could break above 80 Australian cents".
The RBA meeting tomorrow comes ahead of gross domestic product and employment later in the week and New Zealand's central bank meeting tomorrow.
Reserve Bank of New Zealand governor Graeme Wheeler is expected to keep the official cash rate at 2.5%, which would effectively reduce Australia's yield advantage if the RBA cuts as expected tomorrow.
"Wheeler might be a little bit hawkish by talking about the housing market in Auckland and Christchurch and its potential for producing inflation," Mr Speizer says.
Government figures today showed deteriorating terms of trade in the third quarter, with export prices for dairy products sliding 13%, even as the volume sold surged 32%. Earlier this month, Mr Wheeler told politicians the currency is more closely aligned to the terms of trade over the long term than interest rate adjustments.
A BusinessDesk survey of strategists predicts the kiwi will probably fall against the greenback this week with a slowing Australia taking its toll on the local currency and as US policymakers dither in trying to cut a deal to avoid the fiscal cliff – $US607 billion in automatic tax hikes and spending cuts scheduled to kick in on January 1.
Three of those polled see it ending the week lower, two higher and two see it range-bound.
The kiwi traded at 67.53 yen at 5pm in Wellington from 67.58 yen last week while the trade-weighted index was little changed at 73.32 from 73.39. The New Zealand dollar fell to 62.84 euro cents from 63.10 cents and declined to 51.09 British pence from 51.21 pence.