Kiwi gains on weak retailing, Chinese manufacturing

BUSINESSDESK: The New Zealand dollar gained against its Australian counterpart after dwindling retail sales across the Tasman and as China, Australia's biggest buyer of raw materials, reported tepid manufacturing activity.

The kiwi climbed to 77.92 Australian cents at 5pm in Wellington from 77.82 cents at 8am and 77.73 cents on Friday in New York. The kiwi was little changed at 80.08 US cents at 5pm from 79.95 cents at 8am, down from 80.32 cents last week.

The Australian dollar fell after government figures showed retail sales fell 0.8% in July, the biggest decline since October 2010 and short of the 0.2% growth expected by economists.

Australia has been under pressure in recent weeks, with China's economy displaying signs of slowing and the HSBC purchasing managers' index showing the biggest contraction in Chinese manufacturing since March 2009.

The Australian dollar fell 0.5% to $US1.0269 today.

"Risk-off sentiment will be holding up as more commodities take a bit of a battering" on the slowing Chinese economy, says Imre Speizer, market strategist at Westpac Banking in Auckland.

"Things have turned around in the kiwi's favour and it looks like it will head higher [against the Australian dollar] over the next week."

The Reserve Bank of Australia will review monetary policy tomorrow and is expected to keep the target cash rate at 3.5%. The central bank has been reluctant to cut rates too quickly with inflation close to target and growth near trend.

Last month's minutes to the RBA board meeting cited signs of Chinese stability as one of the glimmers of life in the global economy.

New Zealand's terms of trade fell 2.6% in the second quarter after sliding dairy prices and rising imported petroleum costs, government figures show.

Mr Speizer says the kiwi will probably fall to 78 US cents this week given the deteriorating picture emerging in China and may head towards the mid-70s this month.

Three out of five analysts surveyed by BusinessDesk predict the kiwi will fall this week.

It slid to 63.71 euro cents from 63.85 cents at the close of trading in New York on Friday and declined to 50.44 British pence from 50.60 pence. It fell to 62.71 yen from 62.90 yen and edged down to 72.03 on a trade-weighted basis from 72.13 last week.