NZ dollar falls vs. Aust on signs of China commodity demand

The New Zealand dollar fell to its lowest level in more than a week against the Australian dollar after better-than-expected Chinese manufacturing figures suggested demand for Australia's hard commodities will remain strong.

The Australian dollar recently traded at US$1.06.79, up from US$1.06.25 yesterday after Chinese data showed industrial output for the year ending in May rose 13.3 per cent, exceeding expectations of a 13.1 per cent expansion.

The data also showed that annual inflation in China was 5.5 per cent last month, prompting the Peoples' Bank of China to lift the reserve requirement ratio for lenders to 21.5 per cent, the sixth increase this year.

Commodity prices rose 0.7 per cent to 347.01 on the Thompson Reuters Jefferies CRB Index, a broad measure of 19 soft and hard commodities.

"The Chinese data was generally seen as pretty positive for global growth, and though the PBOC hiked the reserve ratio by 50 basis points, markets are viewing it as a positive sign that the Chinese economy is growing quite robustly," said Khoon Goh, head of market economics and strategy for ANZ New Zealand.

In contrast to its Australian counterpart, the New Zealand dollar was little changed against the greenback overnight amid concern Monday's quake aftershocks will hamper the nation's economic recovery and delay any interest rate increases from the central bank.

"The aftershocks are still in the back of minds of investors, and that was why the New Zealand dollar failed to take part in the risk-on session overnight," Goh said. "While unsettling, the aftershocks are not going to derail the recovery story, and once Monday's events are forgotten the kiwi will start to latch onto emerging themes."

The kiwi dollar recently traded at 81.76 US cents, little changed from 81.77 cents yesterday, and fell to 70.36 on the trade-weighted index of major trading partners' currencies from 70.55. It fell to 76.50 Australian cents from 77.95 cents previously, and rose to 65.82 yen from 65.71 yen. It was little changed at 56.57 euro cents from 56.55 cents yesterday, and rose to 49.94 pence from 49.80 pence previously.

The government is set to release the latest retail trade survey for the March quarter today, with the market expecting a strong read, a sign the New Zealand economy as a whole was growing in the first three months of this year despite the Feb 22 earthquake in Christchurch.

The kiwi may trade between 81.45 US cents and 82.15 cents, Goh said.