NZ dollar retreats as risk rises; debt firmer

* NZ dollar falls as weak retail data caution on recovery

* Speculators changing views on U.S. dollar weakness

WELLINGTON, Sept 14 - The New Zealand dollar <NZD=> fell more than 1 percent on Monday on weaker than expected retail sales data and a broadly rebounding U.S. dollar, sent higher by investors covering short positions.

The kiwi <NZD=D4>, which touched a 13-month high of $0.7089 in Friday's offshore session and recorded its seventh straight session of gains, was backpedalling most of the day.

"The NZ dollar tumbled from the lofty levels reached on Friday night as risk aversion escalated," BNZ senior currency strategist Danica Hampton said.

"Sliding Asian equities and growing trade tensions between China and the U.S. also saw investors become less confident in the outlook."

The NZ dollar was trading at $0.6978/84 at 0500 GMT compared with $0.7037/42 in late local trade on Friday.

The kiwi's decline quickened through the session as currency speculators revised their bets that the U.S. dollar would keep falling.

The reverse for the already soft-looking kiwi occurred after data showed a surprise 0.5 percent decline in retail sales in July against an expectation for a rise of 0.5 percent, showing that consumers remained cautious about opening their wallets.

"The retail data was supportive of last week's RBNZ decision to leave the cash rate on hold and retain an easing bias, in large part because of the 'patchy recovery' anticipated," said UBS senior economist Robin Clements.

NZ housing data for August released by the Real Estate Institute showed a lift in house prices on the previous month but a slight dip in the number sold. It was another piece of evidence pointing to the gradual recovery in the housing market. See [ID:nSP463180]

The kiwi also retreated against the Japanese yen <NZDJPY=R> as investors turned to the yen's safe haven status.

New Zealand's data calendar is relatively light for the rest of the week, leaving the kiwi likely to follow broader market events and direction.

"We'll need to see a daily close below $0.6900 to suggest the uptrend is over and a deeper correction is on the cards," said Hampton.

New Zealand bonds were a touch firmer, with yields a tick lower along most of the curve. The yield on the benchmark 10-year bond <NZ10YT=RR> fell 1 basis points to 5.54 percent.