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Kiwi may extend rally as outlook dims across the Tasman


Australian retail sales rose 0.2% in August, half what economists were expecting, while new building approvals shrank an annual 15% for the year ending August 31. 

Paul McBeth
Wed, 11 Jul 2018

(BusinessDesk) The New Zealand dollar may extend gains against its trans-Tasman counterpart after tepid consumer spending and building approvals erode confidence in the strength of the so-called lucky country's economy.

The kiwi traded at 80.33 Australian cents at 5pm in Wellington from 80.41 cents yesterday. It rose to 82.06 US cents from 81.82 cents at 8am, though still down from 82.22 cents yesterday.

Australian retail sales rose 0.2% in August according to government figures, half what economists were expecting, while new building approvals shrank an annual 15% for the year ending August 31.

The deteriorating data comes after the Reserve Bank of Australia cut the target cash rate a quarter-point to 3.25% this week in a bid to stoke activity in flagging sectors across the economy.

Traders are pricing in a 78% chance for another rate cut at next month's meeting, according to the Overnight Index Swap curve, as Australia's dominant resources sector hitting speed bumps amid dwindling global demand.

"Following more dismal data with retail and building approvals pretty soft, there's been a taking up of speculative longs in the kiwi/Aussie cross," says Mike Jones, currency strategist at Bank of New Zealand, referring to the investment strategy of betting an asset will appreciate in value.

"The kiwi's come a long way, 5% in the last month, but I think there are good reasons for it to continue."

The European Central Bank and Bank of England will announce their separate reviews of monetary policy in Northern Hemisphere trading. Both are expected to keep interest rates on hold and investors will be looking to see whether ECB president Mario Draghi for any signs of progress on that bank's government bond purchase programme.

The kiwi fell to 63.476 euro cents from 63.73 cents yesterday, and was little changed at 50.95 British pence from 50.97 pence.

The minutes for the Federal Open Market Committee's latest meeting are also scheduled for release in the New York session, and traders will be looking for clues on where the Fed will go with its unlimited mortgage-backed security buying programme.

The Bank of Japan will also review its monetary policy tomorrow, and will likely keep the benchmark rate near-zero while maintaining the size of its asset purchase plan.

The kiwi rose to 64.55 yen from 64.28 yen yesterday, and was little changed at 73.55 on a trade-weighted basis from 73.43 yesterday.

Paul McBeth
Wed, 11 Jul 2018
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Kiwi may extend rally as outlook dims across the Tasman
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