New Zealand dollar inches off 3-1/2 yr low after RBNZ comments

[SYDNEY] The New Zealand dollar bounced from three-and-a-half year lows on Friday after the head of the country's central bank said he was "pleased" with the current level of interest rates following a surprise half-point cut early this month.

Investors intepreted the comments by Reserve Bank of New Zealand Governor Adrian Orr as lessening the chance of a further easing at its next meeting in late September, lifting the kiwi 0.5 per cent to US$0.6392.

Mr Orr told Bloomberg TV in Wyoming that the RBNZ's cut to 1 per cent on Aug 7 allowed the bank to get ahead of any economic slowdown and reduced the probability of having to do a lot more later.

"So we're pleased with where we are," Mr Orr said.

Markets currently imply a 20 per cent chance of an easing on Sept 25, though a move to 0.75 per cent is fully priced in by February next year.

Domestic data out on Friday showed retail sales rose a slight 0.2 per cent in real terms in the second quarter, pointing to subdued consumer spending and economic growth in the quarter.

The kiwi had hit its lowest since early 2016 at US$0.6362 overnight, partly due to hawkish comments from two Federal Reserve policy makers that lifted the US dollar.

Fed Chair Jerome Powell is due to give a keynote speech at the Jackson Hole conference in Wyoming later on Friday and anything less than a dovish tone would likely boost the US dollar further.

The Australian dollar had also slipped overnight but caught a slight updraft from the rally in the kiwi. It was last at US$0.6760, just above major chart support at US$0.6735.

Both the Aussie and kiwi had been pressured by a fresh drop in the Chinese yuan to an 11-year trough.

The Aussie, in particular, is used by global investors as a liquid proxy for Chinese risks and often moves in lock-step with the yuan.

"Expectations of additional yuan weakness is the bedrock for our recently downgraded forecast for AUD and NZD. We have no strong reason to question them at this stage," said Ray Attrill, head of FX strategy at NAB.

New Zealand government bonds dipped in the wake of the Orr comments, lifting yields around 2 basis points across the curve.

Australian government bond futures also eased, with the three-year bond contract off 3 ticks at 99.300. The 10-year contract fell 5 ticks to 99.0350.

REUTERS