Kiwi hits 3½-year high against AUD after weak March sales

The New Zealand dollar hit a 3.5-year high against its Australian counterpart after weaker than expected consumer spending figures in Australia and ahead of tomorrow's Australian central bank meeting.

The kiwi rose as high as 83.17 Australian cents and traded at 83.08 cents at 5pm in Wellington from 82.64 cents on Friday in New York. The currency traded at 85.46 US cents at 5pm from 85.30 cents at 8am, and 85.32 cents last week.

Australia's retail sales dip 0.4 percent in March, falling short of economists' forecast of 0.1 percent growth and fuelling speculation the Reserve Bank of Australia will start leaning towards a rate cut.

The RBA is expected to keep the target cash rate unchanged 3 percent when its board reviews monetary policy tomorrow, though traders have started pricing in more aggressive cuts later this year.

Traders are betting the RBA will cut rates 57 basis points in the coming 12 months, according to the Overnight Index Swap curve, while New Zealand's central bank is more likely to lift interest rates.

The yield on New Zealand's 10-year government bond was 3.23 percent at 5pm in Wellington, more than 10 basis points above its Australian counterpart.

"There are a couple of views [for the RBA to cut tomorrow] out there that you can't pooh-pooh, so beware a surprise move," says Alex Hill, currency strategist at HiFX in Auckland. "If the kiwi closes above 83 Australian cents, its next target will be 84."

The local currency may gain this week, with a BusinessDesk survey of six strategists predicting it was more likely to trade near the top of arrange between 83.80 US cents to 86.5 cents.

Risk-sensitive assets, such as the kiwi dollar, got a boost from gains in US stock markets on Friday after American jobs growth in April beat expectations.

New Zealand's household labour force survey is the main data point for local traders, and is expected to show the unemployment rate fell a tenth of a percentage point to 6.8 percent in the first three months of the year.

Its precursor data, the quarterly employment survey and labour cost index, are scheduled for release tomorrow and are forecast to respectively show private sector wages rose 1 percent, after a 0.4 percent decline in the December quarter, and an unchanged pace of private wage inflation 0.5 percent in the March quarter.

The kiwi traded at 65.13 euro cents at 5pm in Wellington from 65.05 cents last week and was at 54.85 British pence from 54.78 pence. It rose to 84.70 yen from 84.48 yen on Friday, while the trade-weighted index gained to 78.80 from 78.64.

(BusinessDesk)