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NZ dollar gains after raft of weak US data dims Fed hike bets

Friday 16th September 2016

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The New Zealand dollar rose back above 73 US cents after figures showed weaker US retail sales, manufacturing, and industrial production, dimming bets for an early interest rate hike by the Federal Reserve.

The kiwi rose to 73.16 US cents as at 8am in Wellington, from 72.66 cents late yesterday. The trade-weighted index rose to 78.04 from 77.63.

US industrial production fell 0.4 percent in August, twice as much as economists had expected, while retail sales excluding automobiles fell 0.1 percent against expectations of a 0.2 percent gain. The figures added to other weak data recently that has seen traders dial back the probability of rate hikes, with an increase next week given odds of 20 percent and an increase in December rated a 60 percent chance.  By contrast, the track of New Zealand economic growth may be enough to deter the Reserve Bank from cutting rates any time soon.

New Zealand economic growth "may have slightly underwhelmed, but the third highest growth rate in the developed world needs respect," said Cameron Bagrie, chief economist at ANZ Bank New Zealand. "Momentum is still building and that’s one driver which suggests the NZD may not yet have topped out."

Meanwhile, "with nothing in the economic numbers to say US rates should be moving up, and growing signs of losing momentum, expectations have largely diminished towards the Fed doing anything in September and the market is drifting back towards the view they might do nothing for quite a while," he said in a note.

The New Zealand economy grew 0.9 percent in the second quarter, slower than the market's expectation of 1.1 percent growth but faster than the central bank's 0.8 percent forecast. At the same time, first-quarter growth was revised up to 0.9 percent from 0.7 percent. The economy expanded 3.6 percent in the year.

The Reserve Bank next reviews interest rates on Sept. 22 but the market is betting there's more prospect of a cut at the full monetary policy statement on Nov. 10, provided economic data is weak. Traders will be watching today for the ANZ-Roy Morgan Consumer Confidence report for September for further clues to the economy's pace.

The local currency edged up to 97.34 Australian cents from 97.27 cents and gained to 4.8776 yuan from 4.8456 yuan. It gained to 65.06 euro cents from 64.59 cents and rose to 55.21 British pence from 54.81 pence after the Bank of England left its bank rate unchanged at 0.25 percent. The kiwi rose to 74.69 yen from 74.39 yen.

BusinessDesk.co.nz



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