NZ Dollar Outlook Kiwi may trade in narrow range as investors mull Fed tapering outlook

Monday 23rd September 2013

The New Zealand dollar may trade in a tight range this week as investors consider when the Federal Reserve is likely to start paring back its US$85 billion-a-month monetary stimulus after unexpectedly chosing to keep the package unchanged last week.

The local currency may trade between 82 US cents and 84.80 cents this week, according to a BusinessDesk survey of seven traders and strategists. Four expect the currency to decline while two expect it to advance and one says it will remain unchanged. The kiwi recently traded at 83.59 US cents US cents from 83.49 cents at 8am in Wellington.

The New Zealand dollar jumped more than 2 cents last week as higher-yielding currencies returned to favour following the Fed's decision not to start tapering until it had more signs of a sustained recovery in the US economy. Traders will be eyeing comments from Fed officials this week for indications of central bank thinking.

"We have a lack of local data this week so I see ourselves trading in a relatively tight range," said Stuart Ive, senior client advisor foreign exchange and derivatives at OM Financial. "We have got a lot of Fed speakers this week - they are going to be talking about the fact that the Fed is still going to taper but it may be next month or it may be the month after. The market has just got to readjust itself.

"We had such a big move last week, the market got wrong footed, and now it just needs to take a step back and think what is the situation," Ive said. "We will be watching what these Fed speakers say specifically this week and try and get more of an idea what is the Fed's thinking behind what they have done."

The greenback advanced on Friday after Fed officials suggested tapering may be on the agenda soon. St Louis Fed president James Bullard said September's decision was close and the Fed could scale back the programme in October should data point to a stronger economy. Kansas City Fed president Esther George said she was disappointed by the decision not to begin tapering.

Fed presidents scheduled to give speeches this week include Atlanta's Dennis Lockhart, New York's William Dudley, Dallas's Richard Fisher, Cleveland's Sandra Pianalto, Kansas's George, Minneapolis's Narayana Kocherlakota, Boston's Eric Rosengren and Chicago's Charles Evans.

A slew of data is due for release in the US this week, including house prices, consumer confidence, durable goods orders, second quarter growth, weekly jobless claims, home sales, personal income and spending and consumer sentiment.

Traders will be eyeing this week's US housing indicators as the Fed is scrutinising the property market for signs the recent rise in yields has stymied its recovery, Kymberly Martin, a strategist at Bank of New Zealand, said in a note.

In New Zealand, the main focus of the week is a report Wednesday on August merchandise trade. The report is expected to show a trade deficit of $743 million in August, from a gap of $774 million the previous month, according to a Reuters poll.

Also on Wednesday, the Reserve Bank of Australia will release its September Financial Stability Review. The report, which is likely to say the financial system is "sound", will be scrutinised for any concern about the risks of a housing bubble, economists at UBS said in a note.

Australia also has reports on job vacancies for August and second quarter financial accounts, both due on Thursday.

Meanwhile, traders will also be eyeing manufacturing reports out of China today and Europe and the US tonight. The reports are expected to show modest improvement which should bolster risk appetite and keep the US dollar under pressure, Mike Jones, currency strategist at Bank of New Zealand, said in a note.

BusinessDesk.co.nz

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