Dollar dips after sell off in Asia

The New Zealand dollar fell in late afternoon trading yesterday. Photo / Kenny Rodger

The New Zealand dollar fell in late afternoon trading yesterday after earlier blipping higher on better-than-expected retail sales data.

The NZ dollar was at US76.92c at 5pm, from US77.24c at 8am and US77.52c at 5pm on Friday.

The NZ dollar fell just ahead of 5pm on a sell-off in equity markets in Asia. Sentiment is fragile on worries about Ireland's finances and also about China's monetary policy.

One of the biggest items on the local economic agenda this week was yesterday's September quarter retail sales report. Seasonally adjusted total retail sales rose 0.8 per cent, or $133 million, Statistics New Zealand said.

Retail sales were generally stronger than financial markets had expected, causing both interest rates and the NZ dollar to tick higher, BNZ Markets said.

"While the market response was to be expected, we caution that there was nothing in the data to suggest that household spending is genuinely moving on to a higher trajectory than most expect. And, most importantly from a monetary policy perspective, the data look to be weaker than those built into the Reserve Bank of New Zealand's forecasts for near-term private consumption," BNZ said.

It appeared that consumer spending ahead of an increase in goods and services tax on October 1 may have been more than expected and the strength may reverse in the next quarter.

Westpac said it had adopted a neutral stance to the NZ dollar this week as the dominant factor in the market remained the direction of the US dollar. But longer term it expected the NZ dollar to test the US82c level.

"We can make a case for dollar weakness due to Federal Reserve purchases of treasuries, as well as an opposing case for dollar strength as shorts are squeezed out further. Longer term, we remain bullish," Westpac said.

Against the European currency the NZ dollar was trading at 0.5621, down from 0.5692 on Friday evening.

The evolving crisis in the kiwifruit industry added to the near-term downside risks on the NZ dollar, said BNZ strategist Mike Jones.

He expected the Irish debt saga to continue to take centre stage, with markets on alert for any signs of similar problems in Portugal and Spain.

- NZPA