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NZ dollar drops below 80 Aust cents as spending surges across the Tasman

Friday 8th January 2010

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The New Zealand dollar dropped below 80 Australian cents for the first time in 10 days after data showed consumer spending surged across the Tasman.

Australian retail sales jumped 1.4% in November from the previous month, well above the 0.3% forecast, and encouraged investors to switch their holdings into the so-called ‘lucky country.’

The U.S. dollar climbed on news out of Japan that a Turkish company will halt construction on the Dubai Metro after a delay in payment from the Dubai government.

The Dollar Index, a measure of the greenback against a basket of six currencies, climbed 0.3% to 77.99.  

“The kiwi dropped against the Aussie mainly on the strong retail numbers – retail sales were huge,” said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia, referring to the trans-Tasman currencies colloquially.

“There was a bit of U.S. dollar buying on the news out of Dubai” which pushed the New Zealand dollar down against the greenback, he said.  

The kiwi dropped to 79.78 Australian cents from 79.95 cents yesterday, and declined to 73.23 U.S. cents from 73.54 cents. It sank to 66.74 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 66.91 yesterday, and was little changed at 51.17 euro cents from 51.19 cents.

It slipped to 45.96 pence from 46.18 pence and gained to 68.21 yen from 68.16 yen.  

Kelleher said the currency may trade between 73 U.S. cents and 73.50 cents though it faced a downward bias, and it could sink further if American employment data comes out better than expected when it's released overnight NZT.

Non-farm payrolls are expected to show no jobs were lost last month, according to a Reuters survey, though the U.S. unemployment rate is predicted to rise to 10.1% from 10% as more people return to the workforce.  

Newly appointed Japanese Finance Minister Naoto Kan said he would work with the Bank of Japan to bring down the currency.

The yen was weaker at 93.16 yen per U.S. dollar from 92.68 yen yesterday.  

Danica Hampton, currency strategist at Bank of New Zealand, said the yen has become the “funding currency of choice for many “carry trades” – as investors are convinced the Fed will act to hike rates before the BoJ,” and Kelleher said it looked like there had been uridashi bond buying in kiwi dollars.

The carry trade is where investors take out low interest loans in to invest in higher-yielding assets.

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