NZ Dollar Outlook Kiwi may rise on improving local economic data as greenback weakens

Monday 17th June 2013

The New Zealand dollar may advance this week as signs of an improving local economy boost demand for the local currency while a continuation of economic stimulus in the US debases the greenback.

The New Zealand dollar may trade between 78.50 US cents and 82.50 cents this week, with a positive bias, according to a BusinessDesk survey of 10 traders and strategists. The kiwi recently bought 80.76 US cents, from 80.39 cents at the New York close and 80.56 cents at 5pm in Wellington on Friday.

Recent reports in New Zealand showing strong manufacturing and services activity and a pick-up in consumer confidence are stoking expectations for economic growth. Meanwhile in the US this week, the Federal Reserve is probably going to say it needs further signs of improvement in the economy before tapering its US$85 billion-a-month monetary stimulus programme.

"The data is strong and the market is realising it's got a new lease of life," said Imre Speizer, senior currency strategist at Westpac Banking Corp. "The kiwi data flow should be positive this week."

A report today showed New Zealand consumer confidence surged to its highest level in three years in June, buoyed by improving economic prospects, rising house values, low interest rates and falling consumer prices.

The Westpac McDermott-Miller Consumer Confidence index jumped to 116.6 in the June quarter, up from 110.8 in March and the highest level since June 2010 when it touched 119.3. A reading above 100 indicates more optimists than pessimists. The number of people who would rather spend than save a cash windfall is the highest since 2004.

A separate report showed New Zealand's services sector edged up in May to its highest level for the month in six years, reflecting widespread expansion. The BNZ-Business New Zealand Performance of Services Index was at 56.2 in May, the highest for the month since 2007. The level is little changed from 56.1 in April and follows readings of 55.7 in March and February. A reading above 50 indicates expansion in activity. Services account for about 65 percent of the economy.

That follows a companion survey last week showing New Zealand manufacturing activity rose in May to the highest level since June 2004, led by improved growth in production, new orders and employment.

The upbeat reports boost the chances of seeing better-than-expected growth as early as the second quarter, BNZ said.

On Thursday, gross domestic product figures for the first quarter are expected to show the economy grew at a slower 0.6 percent in the first three months of the year, after expanding at the fastest clip in three years in the fourth quarter of 2012, according to a Reuters survey.

The figures will probably show a slight pull back from drought affects, but still a "decent outcome", Speizer said.

"As long as it's not a horrible number it will probably be considered reason to at least stay long kiwi if not buy it because some of the recent survey data has been surprisingly strong," Speizer said.

Later in the week, a further indicator of consumer sentiment will be released with the ANZ-Roy Morgan Consumer Confidence on Friday.

On Wednesday the government statistician is scheduled to release balance of payments figures for the first quarter. That's expected to show New Zealand's current account deficit narrowed to $600 million in the first quarter from a gap of $3.26 billion three months earlier, according to a Reuters survey.

Also supporting the New Zealand dollar is a technical correction upwards after the local currency's recent slide.

"There is still an upward momentum so I would expect it to go further," said Speizer.

Meanwhile all eyes will be on the US later in the week for comments about the future of quantitative easing. Recent reports have shown the world's largest economy holding firmly to a path of cautious yet sustainable recovery. That has heightened expectations that the Federal Reserve will take its foot off the stimulus pedal which has been holding down the value of the greenback.

The Federal Reserve Open Market Committee starts a two-day meeting tomorrow. Fed chairman Ben Bernanke last month suggested the central bank might reduce the pace of its US$85 billion monthly bond-buying programme. Bernanke will host a news conference Thursday morning New Zealand time after the committee releases its latest policy statement.

"If anything that could be a negative for the US dollar and therefore positive for us," Speizer said. "There's probably still a minor part of the market which expects some tapering signal this week. We think they are unlikely to do that, if anything they will reiterate it's too early and more data needs watched. That will keep QE intact for now, it will suppress interest rates and push down the US dollar. "

Tomorrow in the US, data is due on May housing starts, building permits and inflation.

In Australia tomorrow, traders will be eyeing the release of minutes from the Reserve Bank of Australia's June 4 meeting for any indications of future interest rate cuts that could weigh on the Aussie.

Meanwhile on Wednesday in Japan, the central bank will release the minutes of its last meeting where governor Huruhiko Kuroda failed to announce new stimulus measures, disappointing some investors.

Traders will also keep an eye on a report on Chinese manufacturing activity on Thursday, which could provide a pointer for demand in Asia.

BusinessDesk.co.nz

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