A surprise 0.4 percent monthly decline in June retail sales added fuel to the Kiwi dollar plunge, bringing the total decline of the Kiwi against the greenback to 1.9 percent since the RBNZ?s June 11th currency market intervention.
[B]Monthly Retail Sales Decline Past Expectations
After four consecutive months of positive readings in the past six months, monthly retail sales printed a surprise 0.4 percent decline from May, a significant deviation from the Bloomberg forecast of a 0.4 percent increase. The June metric indicated the second consecutive drop in retail sales in three months, and the signs of a slowdown in consumer spending may be reflective that the RBNZ?s anti-inflationary OCR hikes may be kicking into gear.
New Zealand?s Stock Market Resilient despite Global Fallout - Cullen
New Zealand?s Finance Minister, Michael Cullen, commented that limited national exposure to sub-prime lending helped New Zealand ?s bourse fare comparatively well during the recent fallout in global equity markets. Dr. Cullen opined that New Zealand?s stock markets may actually have gained from the heightened risk aversion since the pullback in the Kiwi dollar boosted stocks of export manufacturers.
Source: New Zealand Herald
[B]Weakening Domestic Consumption Spurs Speculation over RBNZ?s Next Move
The dovish tone adopted by Reserve Bank of New Zealand in conjunction with the latest quarter-point interest rate hike on July 26th fueled speculation of a possible OCR cut. However, the unexpected 0.4 percent slide in retail sales in June indicates that the over-heated economy is finally responding to the central bank?s unprecedented anti-inflationary measures, and hence economists are now forecasting that an interest rate cut may not materialize till late 2008.
Currency Market - NZD:
A surprise 0.4 percent monthly decline in June retail sales added fuel to the Kiwi dollar plunge downwards, bringing the total decline of the Kiwi against the greenback to 1.9 percent since RBNZ?s June 11th currency market intervention. Data on retail sales for June printed a surprise 0.4 percent decline from May, a deviation from the Bloomberg forecast of a 0.4 percent increase, as rising interest rates as well an 8 percent rise in petrol prices crimped consumer spending. NZDJPY, the currency pair of choice for once-popular carry trades, plummeted to a four-month low after credit scares continue to dampen the attractiveness of the Kiwi?s 7.75 percent yield advantage over the yen. New Zealand ?s currency exhibited across-the-board weakness against most majors, and the trade-weighted index declined 1.4 percent to close at 70.51 in Wellington .
Equity Market - NZSX-50 Index:
Despite signs of apparent stabilization in global equity markets, continued profit-taking pushed the NZSX-50 index down 4.48 points, or 0.1 percent, to close at 4065.68 on turnover worth NZ $209.1 million. New Zealand ?s stock exchange is having difficulty emerging from the downward spiral set in motion by turbulence in credit markets overseas, but Finance Minister Michael Cullen commented that New Zealand?s bourse fared comparatively well during the fallout in global equity markets. Dr. Cullen suggested that domestic stocks may actually have gained from the heightened risk aversion since the pullback in the Kiwi dollar boosted stocks of export manufacturers. As the Kiwi dollar plummeted for the fourth consecutive day due to lower-than-expected retail sales, stock of whiteware manufacturer and exporter Fisher & Paykel Appliances rose 11 cents to 357.
Fixed-Income Market - 10-year Government Bond Yields:
Yields on New Zealand?s benchmark 10-year government notes declined as investor caution led to a pullback in riskier Kiwi assets and a consequent surge in demand for government debt.