Dollar eases back under US77c

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

The US dollar was 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 worried about Ireland's finances and also about China's monetary policy.

One of the biggest items on the local economic agenda this week was today's September quarter retail sales report. Seasonally adjusted total retail sales rose 0.8 per cent, or $133 million, in the September quarter, 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 has adopted a neutral stance to the NZ dollar this week as the dominant factor in the market remains the direction of the US dollar. But longer term it expects 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 Friday evening.

The NZ dollar had generally "crashed back to earth" last week after global risk appetite soured and falling NZ/US interest rate differentials knocked it back below US77.50c, BNZ strategist Mike Jones said.

"Not only did the European sovereign debt crisis storm back onto markets' radar following Irish difficulties with fiscal austerity, but global growth sentiment was further dimmed by worries about Chinese policy tightening," he said.

The evolving crisis in New Zealand's kiwifruit industry added to the near-term downside risks on the NZ dollar, as the latest reports indicated the vine-killing PSA disease had continued to spread through North Island kiwifruit vines, Mr Jones added.

Mr Jones 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.

The NZ dollar fell to 63.57 yen at 5pm today from 63.81 yen early Friday evening, but rose to A78.13c from A78.04c on Friday.

The trade weighted index was at 68.71 from 69.17 on Friday.

- NZPA