NZ dollar falls vs. Aust currency as retail sales trim expectations for another RBA rate cut

The New Zealand fell against its Australian counterpart after strong consumer spending across the Tasman trimmed expectations the Reserve Bank of Australia will cut rates again.

The kiwi declined to 87.05 Australian cents at 5pm in Wellington from 87.55 cents at the close of trading in New York on Friday, and little changed from 87.12 cents at the Wellington close last week. The local currency was little changed at 82.54 US cents at 5pm in Wellington 82.56 cents at 8am and 82.63 cents at the New York close.

Australian retail sales grew 0.8 percent in September, the fastest pace in seven months, according to Bureau of Statistics. That was ahead of the 0.4 percent predicted in a Bloomberg survey of economists, and has added to speculation Australia's central bank won't have to cut rates any further. The RBA will review the target cash rate tomorrow, and is expected to keep it on hold at a record-low 2.5 percent.

The Australian dollar rose to 94.79 US cents at 5pm in Wellington from 94.66 cents immediately before the report.

"The retail sales were very good numbers and certainly adds to the view that maybe the RBA won't cut rates again," said Michael Johnston, senior trader at HiFX in Auckland. "We'd previously thought the kiwi would get into the low 90s, when we expected the RBA to cut rates again, but now it's ranging between 86.50 and 88 cents."

Traders have gone from pricing in 2 basis points of cuts over the coming 12 months to an increase of 13 basis points, according to the Overnight Index Swap curve.

New Zealand, Australian and US employment figures on Wednesday, Thursday and Friday respectively are the key pieces of data investors are watching this week.

A BusinessDesk survey of nine traders and strategists predicts the local currency may trade between 81.20 US cents and 84.50 cents this week. Four expected the currency to remain unchanged while three said it may gain and two predict it to drop.

The local currency increased to 51.84 British pence from 51.52 pence on Friday and gained to 61.24 euro cents from 60.94 cents last week. It advanced to 81.49 yen from 80.87 yen last week. The trade-weighted index increased to 76.81 from 76.63 in Wellington Friday.

(BusinessDesk)