File photo / NZ Herald
The New Zealand dollar popped above 85 US cents as better than expected data contrasted with weaker economic reports in the US and Europe, enhancing the lure of local assets.
The kiwi touched a 10-day high of 85.14 US cents overnight, and was trading at 84.91 cents at 8am in Wellington, from 84.70 cents at 5pm yesterday. The trade-weighted index advanced to 79.66 from 79.50 yesterday.
The New Zealand dollar jumped higher after data yesterday showed second quarter retail sales rose more than expected, reinforcing expectations interest rates will resume their upward path next year. In contrast, US data showing an increase in weekly jobless claims following unexpectedly flat retail sales signalled the Federal Reserve won't rush to raise the benchmark rate from record lows.
Meantime reports out of Europe showed the region's economy is still struggling, as growth stalled in the second quarter, amid weaker than expected data from Germany and France which pushed German 10-year bond yields below 1 per cent for the first time.
"New Zealand retail sales showed a slight beat to the upside coming in at 1.2 per cent versus 1.1 per cent eyed, but what really propelled the unit higher was the chase for yield," Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York, said in a note.
"As the European fixed income assets continue to see their yields compress in the wake lacklustre growth, both the Aussie and the kiwi offer the only viable alternative in the G-20 universe for investors desperate for any rate advantage on their sovereign debt return."
With 10-year US Treasury yields hovering near a 13-month low of 2.41 per cent, and 10-year German Bund yields sitting at 1.01 per cent, the 3.38 per cent return offered in Australian bonds and 4.17 per cent yield offered in New Zealand bonds is "extremely attractive", BK Asset Management said.
In New Zealand today, the Reserve Bank releases data on its foreign exchange transactions for June at 3pm.
The New Zealand dollar was little changed at 91.10 Australian cents from 91.07 cents yesterday.
The local currency rose to 63.51 euro cents from 63.37 cents yesterday after data showed Eurozone economic growth stalled in the second quarter as Germany's economy shrank 0.2 per cent, the French economy failed to grow for the second quarter in a row and Italy slid back into recession, shrinking by 0.2 per cent.
The kiwi advanced to 50.87 British pence from 50.77 pence after Bank of England monetary policy committee member David Miles told the BBC the bank could keep interest rates at record-low levels for "a bit longer." Miles said that a subdued outlook on inflation means the BoE will not be pushed into increasing the interest rate, which has been held at 0.5 per cent since March 2009.
The New Zealand dollar gained to 86.98 yen from 86.86 yen yesterday after a report this week showed Japan remained in recession, with the economy contracting 6.8 per cent in the second quarter.