NZ dollar edges up to 34-month high vs euro as retail sales data awaited

Friday 14th May 2010

The New Zealand dollar rose to a 34-month high against the euro on concerns Europe’s debt crisis will hamper the region’s growth and as traders await retail sales figures expected to show a rebound in March.

Investors remained concerned about the state of Europe’s sovereign debt, despite more of the so-called PIGS (Portugal, Ireland, Greece and Spain) acting to damp fears. Portugal proposed to slash its fiscal deficit to 7.3% of gross domestic product this year, and 4.6% next year. Last year, its deficit was 9.3% of GDP.

The British trade deficit was a bigger-than-expected 7.5 billion pounds in March, sapping optimism the new Conservative-led government will be able to turn the sixth-largest economy around.

In New Zealand, retail sales probably rose 1.2% in March, according to a Reuters survey, following a 0.6% contraction in the previous month.

“Europe is looking like a pretty weak region for growth” and that’s weighing on the euro, said Chris Tennent-Brown, economist at Commonwealth Bank of Australia. “If we get really good retail sales we may see people perk up a little” about the kiwi, he said.

The kiwi gained to a new 34-month high at 57.04 euro cents from 56.91 cents yesterday, and climbed to 48.90 pence from 48.56 pence. The currency slipped to 71.51 US cents from 71.65 cents and was little changed at 79.72 Australian cents from 79.71 cents yesterday. The trade-weight index, or TWI, was little changed at 68.35 and the local dollar sank to 66.30 yen from 66.65 yen.

Tennent-Brown said the currency may trade between 71 US cents and 72 cents today as it “ranges over waxing and waning sentiment rather than any new data.” A strong retail report could push the kiwi dollar above 80 Australian cents, he said.

Reserve Bank Governor Alan Bollard said in a May 6 speech that New Zealand businesses are behaving “very cautiously” and holding off on investments and hiring, while households faced only a soft pick-up in house prices and are repaying debt and building up savings rather than borrowing more.

Still, the jobless rate has unexpectedly tumbled to 6% from a 17-year high 7.1%, which may give consumers more confidence to resume spending.

Against that, Real Estate Institute figures for April are expected to show the property market remains subdued, damping household perceptions that their wealth is growing.

Businesswire.co.nz

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