Kiwi pares loss as retail sales show a broad-based recovery

The New Zealand dollar pared its loss in the local trading session after government figures showed growth in retail sales across most sectors and regions in the first three months of the year.

The kiwi rose to 82.90 US cents at 5pm in Wellington from 82.40 cents at 8am, little changed from 83.05 cents yesterday. The trade-weighted index fell to 77.46 from 77.67 yesterday.

New Zealanders increased their spending 0.5 percent in the three months ended March 31, according to Statistics New Zealand, short of the 0.8 percent growth forecast, but with gains in most industries and across almost all regions.

A fall in spending on apparel held back the headline number, with fewer people buying new clothes because of an unseasonally warm autumn.

The improving retail environment across most of New Zealand bolstered investors' optimism that the economic recovery is not limited Auckland and Christchurch, which are showing heating property markets amid a shortage of supply.

The kiwi has been sold off in recent days as traders rally behind the greenback amid expectations the US economy is on the mend.

"It's a good mix of the retail sector performing reasonably well, but with not a lot of inflationary pressure to knock it," says Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. "When the US dollar is firm then the kiwi is likely to not get quite as buoyant as it was a few weeks ago."

Foreign investors continued to support New Zealand's government bonds and Treasury bills in April, accounting for two-thirds of the $43.03 billion on issue, according to Reserve Bank figures. That is the highest proportion of non-residents holding New Zealand government securities since November 2008.

Australia's federal government will unveil its budget today in Canberra, ahead of New Zealand's on Thursday, though both are unlikely to have much impact on currency markets, with most of the fiscal spending and economic forecasts already signalled.

Both governments will update their debt issuance at their respective budgets, though Mr Tennent-Brown doubts "demand was going to change" for either nation, which are offering superior yields to many peers operating in a low interest rate environment.

The yield on New Zealand's 10-year government bond was 3.46 percent at 5pm in Wellington and Australia's equivalent was 3.24 percent. That compares to a yield of 1.93 percent offered on US 10-year Treasuries, 1.36 percent on German bunds and 0.85 percent on Japanese 10-year notes.

The kiwi slipped to 82.97 Australian cents from 83.07 cents at 5pm yesterday and dropped to 84.11 yen from 84.49 yen. It slid to 63.71 euro cents from 63.99 cents yesterday and was little changed at 54.12 British pence from 54.09 pence.

(BusinessDesk)