Dollar declines as Chinese concerns recede, turning focus to US interest rates

The New Zealand dollar declined as concerns about Chinese policy to weaken the yuan abated, turning attention to the likelihood of an interest rate rise in the US.

The kiwi fell to 65.77USc at 8am in Wellington, from 66.09USc at 5pm yesterday. The trade-weighted index slipped to 70.60 from 70.97 yesterday.

The People's Bank of China yesterday dismissed suggestions its move this week to allow the yuan to trade more freely was a deliberate devaluation of its currency to make its exports more competitive, and said there was no reason for the depreciation to continue. That eased traders' concerns, and turned the focus to the potential for an interest rate hike in the US when the Federal Reserve meets next month. Better retail sales data was also released yesterday.

"Markets struck a calmer tone following comments from People's Bank of China policymakers, who stated that there was no basis for the currency's constant depreciation and that the adjustment was already largely complete, which helped to dampen market volatility," ANZ Bank New Zealand senior rates strategist David Croy and senior FX strategist Sam Tuck said in a note. "This leaves markets to focus on overarching themes, mostly of US dollar strength. US retail sales were solid last night, with positive revisions to prior months ensuring that the US consumer is supporting Fed normalisation."

ANZ expects the kiwi to trade between 65.30USc and 66.30USc today.

In New Zealand today, second-quarter retail sales data is scheduled for release at 10:45am. Retail sales volumes probably increased 0.5% from the previous quarter when they advanced 2.7%, according to a Reuters poll of economists.

In the US tonight, the focus will be on industrial production and consumer confidence reports.

The New Zealand dollar slipped to 89.25Ac from 89.54Ac yesterday. Reserve Bank of Australia assistant governor (economics) Christopher Kent is scheduled to give a speech on 'Recent Labour Market Developments' at an Economic Society of Australia lunch in Brisbane.

The local currency dropped to 58.97 euro cents from 59.34 cents yesterday ahead of European second quarter gross domestic product data tonight.

The kiwi declined to 42.12 British pence from 42.32p yesterday and fell to ¥81.82 from ¥82.26.

(BusinessDesk)