NZ dollar falls as case for Fed tapering strengthens

The kiwi was little changed at 84.15 US cents at 8am in Wellington from 84.13 cents at 5pm yesterday.

The New Zealand dollar weakened as investors bet retail sales growth in the US suggests a revival in the world's largest economy which will prompt the Federal Reserve to start tapering its monetary stimulus next month.

The kiwi slipped to 79.64 US cents at 8am in Wellington, from 79.97 cents at the 5pm market close yesterday. The trade-weighted index dipped to 75.15 from 75.21 yesterday.

The US dollar index, which measures the greenback against a basket of other currencies, jumped after a report showed US retail sales rose in July for a fourth month. Investors are betting positive economic data will prompt the Fed at its next meeting in September to reduce its US$85 billion a month bond buying quantitative easing programme which has debased the US currency.

"There was broad US dollar strength," said Martin Rudings, a senior advisor at OM Financial. "The market is now perceiving that the tapering of the US QE will start in September and the case is getting stronger as we go through more data,"

In New Zealand today, traders will be eyeing a report at 10:45am expected to show second quarter retail sales rose a buoyant 1.3 per cent.

"I suspect the data in New Zealand will start getting better in the September quarter," said OM Financial's Rudings. "The New Zealand economy is still looking pretty robust."

To be sure, Rudings said the stronger driver for the local currency is the tapering of monetary stimulus in the US.

"Essentially they are endorsing the fact that the US economy is recovering and no longer requires them to expand their balance sheet - it is the beginning of normalising everything that was skewed after the global financial crisis," Rudings said. "Now we are unwinding all that. It took five years to put it on, we will probably get it off within a year."

The kiwi could slide down below 70 US cents by the end of the year should tapering start in September, he said.

The New Zealand dollar weakened to 87.36 Australian cents at 8am in Wellington from 87.47 yesterday. The local currency dropped to 51.51 British pence from 51.68 yesterday and was little changed at 60 euro cents. The kiwi advanced to 78.10 yen from 77.78 yen yesterday.