Reuters New Zealand
NZ dollar hangs on to gains, debt softer
Friday May 16, 05:34 PM
WELLINGTON, May 16 (Reuters) - The New Zealand dollar NZD= held on to limited gains on Friday, clawing back some lost ground after a week of negative data dimmed the economic outlook and hastened the prospect of lower interest rates.
The kiwi rebounded in offshore trade from four-month lows hit the previous day on the back of worse-than-expected retail data, and stayed in a narrow range above $0.7600 for much of the local session.
The outlook for the kiwi was still seen negative given the deteriorating economy and likely reduction in its yield appeal.
"With the New Zealand economy set for a sharp slowdown this year, owing at least as much to domestic factors as to the turmoil offshore, the NZ dollar is likely to lag among the major currencies," said Westpac currency strategist Michael Gordon.
At 0500 GMT the kiwi was at $0.7645/51 from $0.7565/75 in late local trade on Thursday, having traded a tight $0.7623-0.7648 range.
The kiwi traded a near-two cent range during the week, ending the week 0.5 percent lower.
Weak retail and housing data were taken as confirmation New Zealand's economy is close to recession, with most analysts now seeing central bank rate cuts no later than September, when only a month ago the majority were forecasting the end of this year or early 2009.
Data showing the producer price index, a measure of wholesale inflation, rose 2.3 percent for input prices and 1.8 percent for outputs, was largely ignored as having little real impact on the rate outlook. See [nWEL141057]
However, the kiwi has been vulnerable to weak local data and poorly performing equity markets, which have been a barometer of investor appetite for risk.
"We think NZ dollar weakness will be more clearly captured through the trade-weighted index, with the US dollar still struggling to make a convincing recovery," Gordon said.
Next week's key event is Thursday's annual government budget, which will contain cuts to income tax rates, already well signalled by Finance Minister Michael Cullen, along with new spending on social programmes and infrastructure.
The size of the tax cuts and new spending will be closely watched to see the degree of fiscal stimulus they might give the economy, and whether that might influence the central bank's policy outlook.
Other data is largely second tier with migration, electronic card transactions and credit card billings offering snapshots on the current state of the economy.
New Zealand debt closed a shade weaker, reversing early gains. The yield on the benchmark NZ government 10-year bond NZ10YT=RR closed a tick higher at 6.37 percent. (Reporting by Gyles Beckford; Editing by James Thornhill)
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