Dollar falls ahead of Reserve Bank report, retail sales

The New Zealand dollar fell ahead of the Reserve Bank's financial stability report and retail sales data for the first quarter, as traders scrutinise anything that could add to the case for interest rate cuts.

The kiwi traded at 73.59 US cents as at 5pm in Wellington, from 73.83 cents late yesterday, but up from an eight-week low of 73.30 US cents it touched overnight. The trade-weighted index fell to 76.16 from 76.45 yesterday.

The financial stability report may include new policy to tighten lending restrictions for Auckland property investors as the Reserve Bank tries to give demand and inflation a nudge while avoiding inflaming an already heated market for homes in New Zealand's largest city. Real Estate Institute figures today showed the median house price in Auckland didn't budge between March and April, to remain at $720,000, still about 18 percent up from the same month last year.

The report "is going to be extremely closely watched," said Alex Hill, head of corporate FX at NZForex. "There's some really polarising views on where interest rates are going to go."

Hill said the Reserve Bank may say it needs more economic information before committing to a rate cut, given how quickly its views have changed. "It's difficult to go from a view of interest rate rises to interest rate cuts quickly. I think we need to see more data."

Growth in retail sales probably slowed to 1.5 percent in the first quarter from 1.7 percent three months earlier, according to a Reuters poll. The figures, due on Thursday, follow electronic card spending figures for April this week which showed Kiwis' spending on credit and debit cards fell 0.8 percent, the first decline in 10 months. That in turns followed figures last week showing wage cost inflation abated in the first quarter. ANZ Bank this week joined Deutsche Bank and ASB Bank in forecasting 50 basis points of interest rate cuts over coming months.

"The view is still for the kiwi go lower," Hill said.

The New Zealand dollar fell to a near four-month low of 92.80 Australian cents from 93.51 cents yesterday ahead of the Australian Federal budget announcement tonight.

The local currency dropped to 47.23 British pence from 47.88 pence yesterday and fell to 88.43 yen from 88.50 yen yesterday. It declined to 65.86 euro cents from 66.21 cents.

(BusinessDesk)