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NZ dollar gains on weak US data

NZ NewswireNZ Newswire 15/09/2016 Jonathan Underhill

The New Zealand dollar rose back above 73 US cents after figures showed weaker US retail sales, manufacturing, and industrial production, dimming bets for an early interest rate hike by the Federal Reserve.

The kiwi rose to 73.16 US cents as at 8am in Wellington, from 72.66 cents late on Thursday. The trade-weighted index rose to 78.04 from 77.63.

US industrial production fell 0.4 per cent in August, twice as much as economists had expected, while retail sales excluding automobiles fell 0.1 per cent against expectations of a 0.2 per cent gain.

The figures added to other weak data recently that has seen traders dial back the probability of rate hikes, with an increase next week given odds of 20 per cent and an increase in December rated a 60 per cent chance.

By contrast, the track of New Zealand economic growth may be enough to deter the Reserve Bank from cutting rates any time soon.

New Zealand economic growth "may have slightly underwhelmed, but the third highest growth rate in the developed world needs respect", said Cameron Bagrie, chief economist at ANZ. "Momentum is still building and that's one driver which suggests the NZD may not yet have topped out."

"Expectations have largely diminished towards the Fed doing anything in September and the market is drifting back towards the view they might do nothing for quite a while," he said.

The New Zealand economy grew 0.9 per cent in the second quarter, slower than the market's expectation of 1.1 per cent growth but faster than the central bank's 0.8 per cent forecast. At the same time, first-quarter growth was revised up to 0.9 per cent from 0.7 per cent. The economy expanded 3.6 per cent in the year.

The Reserve Bank next reviews interest rates on September 22 but the market is betting there's more prospect of a cut at the full monetary policy statement on November 10, provided economic data is weak.

Traders will be look for the ANZ-Roy Morgan Consumer Confidence report for September for further clues to the economy's pace.

The local currency edged up to 97.34 Australian cents from 97.27 cents, gained to 4.8776 yuan from 4.8456 yuan, lifted to 65.06 euro cents from 64.59 cents and rose to 55.21 British pence from 54.81 pence after the Bank of England left its bank rate unchanged at 0.25 per cent. The kiwi rose to 74.69 yen from 74.39 yen.

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