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NZ dollar rises on strong retail sales, positive signals from US-China trade talks

Monday 25th February 2019

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The New Zealand dollar rose after stronger-than-expected retail sales and as positive noises continue to emanate from both Chinese and United States officials over their trade talks.

The kiwi was trading at 68.63 US cents at 5pm in Wellington from 68.29 at 7.45am while the trade-weighted index was at 74.15 points from 74.03.

“We did have a really good number in terms of retail sales earlier today,” says Mitchell McIntyre, a dealer at XE.

Retail sales volumes rose a seasonally adjusted 1.7 percent in the December quarter from a revised 0.3 percent gain in the September period, Stats NZ said. That's higher than the 0.5 percent gain expected by economists.

Satish Ranchhod, an economist at Westpac, says he’s expecting to see continued moderate gains in spending over 2019.

“While spending levels have picked up, we’re still seeing only very muted price gains,” Ranchhod says.

“Prices in core – ex-fuel categories – were essentially flat over the past year. In fact, we haven’t seen a material acceleration in retail price inflation since the financial crisis. That’s despite the firming in domestic demand in recent years."

Traders took hope from US President Donald Trump announcing he will delay imposing further trade tariffs on Chinese goods.

Trump had previously threatened to increase import duties on US$200 billion of Chinese goods from 10 percent to 25 percent from early March.

Now he says the two countries have made “substantial progress” in trade talks over the weekend and that he is planning a summit with Chinese President Xi Jinping in Florida to cement any trade deal they reach.

A report from China’s official news agency, Xinhua, also noted “substantial progress” on key issues including technology transfer, intellectual property protection and agriculture.

“There’s nothing firm at the moment, but I think the market is seeing it as no news is good news,” McIntyre says.

Meanwhile, traders shrugged off news that the Ministry for Primary Industries has discovered yet another male Queensland fruit fly on Auckland’s North Shore but says there’s no evidence of a breeding population.

MPI has also found two Facialis fruit flies, a native of Tonga, in Otara in south Auckland.

McIntyre says the fruit fly news “might have been playing into the sell-off last week.”

However, until and unless MPI finds female flies or evidence of a breeding population, which could threaten New Zealand’s horticulture industry, the market is unlikely to be too concerned.

The New Zealand dollar was trading at 96.07 Australian cents from 95.73, at 75.93 yen from 75.57, at 52.51 British pence from 52.27, at 60.51 euro cents from 60.20 and at 4.5890 Chinese yuan from 4.5831.

The two-year swap rate was at 1.8430 percent from 1.8507 on Friday and the 10-year swap rate was at 2.4300 percent from 2.4500.


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