New Zealand Dollar Slumps To 8-day Low Against Aussie As Retail Sales Plunge

Statistics NZ reported today that when adjusted for inflation, retail sales volume for the first quarter declined 2.9 percent from the preceding quarter. The drop was more than double the previous record decline of 1.4 percent registered in June 2008 and March 1997.

The agency said the long term trend in total retail sales volumes has been declining since June 2007, having fallen a cumulative 6.7 percent since then, marking the longest and fastest period of decline since record keeping began in September 1995.

In terms of value, total retail sales for the quarter were down a seasonally adjusted 1.5 percent, the fourth straight quarterly fall and the largest in 12 years. The biggest declines were seen in motor vehicle sales, which were down 9.2 percent. Auto fuel retailing dropped 6.6 percent.

Since retail sales account for close to eight per cent of New Zealand's gross domestic product, today's report pointed to another sharp contraction in the first quarter, and more easing by the central bank.

New Zealand's economy has been in recession since the start of last year as the global financial crisis exacerbated the effects of a rapidly cooling housing market, bringing about job cuts and stagnating incomes.

The Reserve Bank of New Zealand responded by cutting the key rate by a total of 575 basis points since last July to a record low 2.5 per cent. It has said last month it would keep the interest rate steady or lower until the latter part of 2010.

The New Zealand dollar slipped to 1.2853 against the Aussie during Asian deals on Friday. This set the lowest point for the kiwi since April 07. On the downside, 1.295 is seen as the next likely target for the NZ dollar. The aussie-kiwi pair was worth 1.2755 at Thursday's close.

The kiwi tumbled to near a 2-month low of 1.2950 against the aussie on April 30. Although the kiwi gained 3% thereafter, it weakened again after hitting a 13-day high of 1.2569 on May 11. Thus far, the kiwi has declined 2% against the aussie.

In Asian trading on Friday, the New Zealand dollar dropped against the U.S. currency. At about 10:10 pm ET, the kiwi-greenback pair touched 0.5908, down from yesterday's close of 0.5968. If the pair weakens further, it may likely target the 0.5865 level.

The NZ dollar has been in a downward channel against the greenback after it reached a new multi-month high of 0.6131 on May 11. Since then, the kiwi-greenback pair has depreciated 4%.

The New Zealand dollar, which closed yesterday's trading at 57.22 against the Japanese yen, fell to 56.65 in Asian deals on Friday. The next downside target level for the kiwi is seen at 55.9.

In economic news from Japan, core machinery orders in Japan were down 1.3 percent to 727.9 billion yen in March compared to the previous month significantly better than forecasts for a 4.6 percent decline after the revised 0.6 percent gain in February and the 3.8 percent fall in January. On an annual basis, core machinery orders dropped 22.2 percent - but that was also better than forecasts for a 27.7 percent contraction after the 30.1 percent fall in the previous month.

Also, the Bank of Japan said that an index measuring the price of corporate goods in Japan fell 3.8 percent on year to 103.6 in April, marking the largest annual decline since June 1987. It was also sharper than the 3.0 percent decline that analysts had been expecting after the 2.2 percent annual decline in March.

The kiwi-yen pair weakened after jumping to a new multi-month high of 60.41 on Monday. The pair has lost 5% thus far this week.

During Asian deals on Friday, the New Zealand dollar edged down to 2.3074 against the euro. This may be compared to yesterday's New York session close of 2.2856. The near term support level for the NZ dollar is seen at 2.355.

Traders will have a busy European session today, in which the German, French, Italian and the Euro-zone preliminary first quarter GDP as well as the Italian and the Euro-zone CPI reports for April have been slated for release.

From U.S., the consumer price index for April is scheduled to be released at 8:30 am ET. The consensus estimates call for an unchanged reading for the consumer price index and a 0.1% rise in the core consumer price index that excludes food and energy.

At the same time, the results of the New York Federal Reserve's empire state manufacturing survey is slated to be released. The headline general business conditions index for May is expected to come in at -15.

The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for March at 9 am ET.

At 9:15 am ET, the industrial production report of the Federal Reserve is due out. Economists estimate that industrial production declined 0.6% in April, while capacity utilization is expected to come in at 68.9%.

The Reuters/University of Michigan's preliminary report on the consumer sentiment index for May is scheduled to be released at 10 am ET. Consumer confidence is expected to remain almost flat in the month, with economists forecasting a marginal decline in the index to 65 from 65.1 in the previous month.

For comments and feedback: contact editorial@rttnews.com