By Cecile Lefort and Charlotte Greenfield
SYDNEY/WELLINGTON, Sept 3 (Reuters) - The Australian dollar slipped on Thursday after a surprising fall in domestic retail sales added to already bearish sentiment, in contrast to the New Zealand dollar which was little changed at $0.6363.
The Australian dollar dropped to $0.7008, from $0.7040 in early trade, pulling close to a 6-1/2-year low of $0.6982 touched on Wednesday. Dealers quoted stops below $0.6975.
The Aussie retreated around 0.4 percent to 84.43 yen against the safe haven yen, showing a loss of more than 3 percent this week.
Investors have been aggressive sellers of the Aussie across the board in recent weeks in large part due to heightened concerns about a hard landing for the Chinese economy.
The latest blow came after retail sales in July fell 0.1 percent from June versus forecasts for a rise of 0.4 percent.
"A lousy retail sales figure only reinforced concerns we had over the Australian consumer after the (GDP data) of yesterday," said Sean Callow, a senior currency strategist at Westpac Bank. He sees a period of stabilisation ahead for the Aussie as Chinese markets are closed for a public holiday.
Household spending is one of the sectors that the Reserve Bank of Australia (RBA) is relying on to offset the end of mining investments. Data released on Wednesday showed the economy grew 0.2 percent in the second quarter, the slowest pace in more than two years.
Markets ignored other data including a reduction in the nation's trade deficit.
Interbank futures 0#YIB: were little changed, having already priced in a 25-basis point cut in the central bank cash rate by early next year, while the majority of economists see a steady rate outlook through 2016.
The New Zealand dollar NZD=D4 was stuck to the tight $0.6300 to $0.6400 range it has traded in for much of the week, supported as some investors crept back into higher-yielding assets.
The kiwi was up against most currencies, with its trade-weighted index gaining 0.41 percent after hitting a three-year low on Tuesday.
Markets have fully priced in that the Reserve Bank of New Zealand will cut rates by 25 basis points at its policy review next week and most economists anticipate a further cut by the end of the year.
New Zealand government bonds eased, pushing yields as much as 2.5 basis points higher along the yield curve.
New Zealand government bonds were largely flat.
Australian government bond futures were steady, with the three-year bond contract unchanged at 98.210. The 10-year contract was down half a tick at 97.2750. (Editing by Jacqueline Wong)