Aussie Falls Versus Kiwi on Rate Views as N.Z. Retail Sales Rise

Australia’s dollar declined against the New Zealand currency as data on consumer spending and wages added to signs that the economic prospects for the South Pacific countries are diverging.

The kiwi climbed against all of its 16 major peers after figures showed New Zealand’s core retail sales jumped in the second quarter, stoking speculation the central bank will raise borrowing costs. The Aussie fell for a third day versus the U.S. dollar after an Australian report showed wage growth stayed at the slowest pace in more than three years.

“We favor selling the Aussie-kiwi on bounces,” said Imre Speizer, a market strategist in Auckland at Westpac Banking Corp., Australia’s second-biggest lender by market value. “The Reserve Bank of New Zealand is going to start tightening in March, the Reserve Bank of Australia is cutting rates.”

Australia’s currency slid 0.4 percent to NZ$1.1395 at 4:53 p.m. in Sydney. It touched NZ$1.12 on Aug. 1, the weakest since October 2008. The Aussie fell 0.2 percent to 90.94 U.S. cents, while the kiwi advanced 0.2 percent to 79.80 U.S. cents.

New Zealand’s two-year swap rate was little changed at 3.46 percent, after reaching 3.47 percent, the highest since August 2011. The yield on Australia’s benchmark 10-year note climbed 10 basis points to 3.85 percent after touching 3.86 percent, a level unseen since July 10.

Wages in Australia gained 0.7 percent in the three months through June 30, the same pace of increase as the first quarter, the statistics bureau said today. That matched the lowest since December 2009.

N.Z. Linkers

Statistics New Zealand said today core retail sales that exclude fuel and vehicles increased 2.3 percent in the second quarter, the most since 2006.

A report from the Real Estate Institute of New Zealand on Aug. 12 showed that its gauge of the nation’s property values were near a record high in July. Growth in consumer prices is likely to quicken to 1.6 percent by the year-end from 0.7 percent in the second quarter, according to the median estimate of economists surveyed by Bloomberg News.

“We like inflation-linked bonds in New Zealand,” said Westpac’s Speizer. The third-quarter inflation rate is likely to show a big jump, and “that will make inflation-linked bonds very attractive, particularly the 2016 maturity,” he said.

Linkers maturing in February 2016 traded at 158.088 today after falling to 158.111 this month, the lowest since May 2011.

Rate Prospects

Traders see a 96 percent chance the RBNZ will raise borrowing costs by at least a quarter percentage point by April from a record-low 2.5 percent, according to data compiled by Bloomberg on overnight-index swaps. There is a 63 percent likelihood that the RBA will lower the overnight cash-rate target by March after cutting it to 2.5 percent on Aug. 6, the figures show.

An index of Australian consumer confidence rose 3.5 percent in August from a month earlier to the highest since March, Westpac and the Melbourne Institute said today. A reading above 100 indicates optimists outnumber pessimists.

“While cutting rates is associated with a slowing economy, the consumer reaction is generally different,” Gareth Aird, an economist at Commonwealth Bank of Australia (CBA), wrote in a research note. “A lower cash rate means lower mortgage rates. And this means lower monthly mortgage repayments, the ability to repay debt quicker or cheaper new debt. All of these three factors are positive for consumer sentiment.”

The kiwi remained higher even after New Zealand Trade Minister Tim Groser said Russia temporarily suspended imports of some dairy products from his country. New Zealand is working with Russian to reopen the market, Groser said in a statement.

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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