Retail data, house sales cast gloom in New Zealand

Wellington: New Zealand retail sales rose less than expected in the fourth quarter while house sales hit an 18-year low, raising fresh doubts about the strength of the economic recovery and cooling expectations of how high rates will rise this year.

The New Zealand dollar fell more than a third of a cent to a low of $0.6972 while bank bill contracts rallied following the retail sales data, although the market continued to price in a 25-basis-point rate hike in June.

"Friday's data will underscore the [central bank] governor's concerns over the fragility of the Kiwi recovery and add to the run of generally disappointing numbers in New Zealand of late," said Su-Lin Ong, senior economist at RBC Capital Markets.

"The RBNZ [Reserve Bank of New Zealand] looks set to sit on the sidelines in the coming months and we do not expect a tightening cycle to begin until June."

The RBNZ has held rates steady at 2.5 per cent since June last year but said last month it may start raising rates around the middle of the year, depending on how the economy is faring.

Retail sales volumes, which strip out price movements, rose a seasonally adjusted 1.0 per cent in the three months to December 31, weaker than market expectations for a 1.4-per cent rise but up from 0.3 per cent gain in the third quarter, the data showed.

Core sales, excluding autos, rose 1.3 per cent.

Flat showing

The value of December month seasonally adjusted sales also lagged expectations with a flat showing, compared with a forecast for 0.5 per cent growth, as stronger car and fuel retailing were offset by weaker supermarket and department stores sales. December core sales were 1.8 per cent lower.

House prices fell and sales hit an 18-year low in January, with uncertainty over tax policy as responsible for the weakness, an industry body said.

Swap yields

Swap yields fell across the curve on Friday, with two-year swaps dropping as much as 8 basis points and the 10-year swaps down around 6 basis points.

Investors now expect the RBNZ to raise rates by 159 basis points over the next 12 months compared with 167 basis points on Thursday, according to a Credit Suisse index.

The index has fallen from 191 basis points early this month after a series of weak data, including jobless rate hitting a 10-year high in the fourth quarter and wage growth slowing to its weakest in nine years, raised doubts over the pace of the recovery.

Last weekend, RBNZ governor Alan Bollard described the domestic and global economies as going through a fragile period.