NZ dollar firms on Iran, economy woes to cap gains

WELLINGTON, July 9 (Reuters) - The New Zealand dollar <NZD=> edged up on Wednesday as the U.S. dollar slipped on a report that Iran had test fired missiles, but further gains were seen limited due to the risk of an earlier-than-expected rate cut by New Zealand's central bank.

The kiwi rose about a quarter of a cent to a session high of $0.7560 as the U.S. dollar eased on the Iranian state media report (see [nL09130312]).

But a worsening domestic economic outlook will determine the direction for the kiwi, analysts said, with the market currently seeing a 50/50 chance of a rate cut by the Reserve Bank of New Zealand at its policy meeting on July 25.

"Most of the focus will be on the retail sales and CPI report before the market makes a firm commitment as to the likelihood of a July rate cut," said Sue Trinh, senior currency strategist at RBC Capital Markets.

The kiwi was at $0.7545/50 at 0520 GMT, compared with $0.7520/30 in late local trade on Tuesday. It fell to a three-week low of $0.7483 <NZD=D4> in post local trade on the previous day.

Retail sales are expected to have risen 0.1 percent in May following a 1 percent gain in April while core sales, which exclude car-related sales, are seen rebounding 0.5 percent, according to a Reuters poll [NZ/POLL].

The consumer price index likely rose 1.4 percent in the second quarter, the biggest rise in two years and double the rate in the previous quarter, the survey showed. For a preview see [nWEL109786].

The retail and inflation numbers are due on July 14 and 15 respectively.

RBC's Trinh said a weaker-than-expected retail sales data and an as-expected rise in the CPI would likely see the market factor in a greater risk of a 25 basis point cut this month.