kiwi data

retail sales – dollar versus euro aud and usd – recession unlikely – cautionary monetary policy – rate cut unlikely

Dollar Jumps On Retail Sales Data
14/04/2006 10:48 AM
Reuters
By Kazunori Takada and Wendy Pugh

The New Zealand dollar jumped more than 1 percent to a three-week high on Thursday after stronger-than-expected retail sales data suggested an economic recession may be averted and an early rate cut avoided.

Concerns that the economy may have contracted for the second straight quarter during the first three months of this year had been increasing following sluggish data, and had driven the kiwi down to a 22-month low last month.

But analysts said Thursday’s data had wiped out such speculation although many said it was unlikely to have a decisive impact on the Reserve Bank of New Zealand’s monetary policy.

“It is only one month’s number, but on face value it puts back expectations for rate cuts,” TD Securities Chief Strategist Stephen Koukoulas said.

“It should also support the Kiwi dollar, which now looks like offering very high yields for some time to come.”

The New Zealand dollar rose as high as $0.6260 from around $0.6168/78 just before the release of the data.

It was trading around $0.6227/37 by 0500 GMT compared with $0.6149/59 in late New Zealand trading the previous day.

The currency was also around a three-week high against the Euro , a four-week high against the yen , and a one-week high against the Aussie dollar .

The kiwi tumbled about 12 percent since the start of the year to a 22-month low of $0.5993 last month after data showed the economy contracted for the first time in over five years in the fourth quarter.

The RBNZ, which has raised interest rates by a total of 2.25 percentage points since January 2004, left rates unchanged at 7.25 percent last month and said it expected to keep them there for the rest of the year.

However, most analysts expect an interest rate cut to come by the end of September given the rapid speed of the economic slowdown, according to the latest Reuters poll released last week.

Expectations that the economy may have contracted again in the first quarter — indicating a technical recession — had heightened after a flat reading in January retail sales and a sluggish quarterly business sentiment survey by a leading research firm released earlier in the week.

Some traders remained wary about the kiwi’s rebound, saying it was also driven by position squaring ahead of the Easter holiday starting Friday and that the long-term trend was still for a decline.

Statistics New Zealand said the seasonal adjustment model had identified the February retail sales figures as “atypically high” and should be treated with caution.

In a sign that the market was scaling back its expectations of an early interest rate cut, the implied yield on the June futures contract rose four basis points to 7.41 percent, while the September contract rose eight basis points to 7.21 percent.

New Zealand first quarter inflation data is due next Wednesday, with economists expecting the consumer price index to rise 0.7 percent on the December quarter and 3.4 percent on a year ago.

(Additional reporting by Wayne Cole in Sydney)

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