NZ Dollar Outlook Kiwi may gain if Federal Reserve minutes omit tapering signal

Monday 19th August 2013

The New Zealand dollar may gain this week should traders fail to see any signal in Federal Reserve minutes about when the US central bank may start tapering its US$85 billion a month bond buying programme, which has debased the greenback.

The local currency may trade between 79.25 US cents and 82.25 cents this week, according to a BusinessDesk survey of 10 traders and strategists. Seven expect the currency to gain, two expect it to decline and one says it will likely remain unchanged. The kiwi recently traded at 81.07 US cents from 80.98 cents at 8am in Wellington.

Currency markets are being driven by expectations of when the Fed is likely to reduce the volume of its monthly bond buying, which has kept interest rates low to stimulate demand. The greenback could weaken should traders fail to see any hint of a September tapering in minutes of last month's Federal Open Market Committee meeting, due to be published on Wednesday.

"The risk I see to the FOMC minutes is that the FOMC are fairly dovish and showing no signs of tapering at the September meeting," said Sam Tuck, senior manager FX at ANZ New Zealand. "That would send US dollars a little bit weaker and therefore kiwi a little bit higher."

Some 65 percent of economists surveyed by Bloomberg this month expect the FOMC to vote at its Sept. 17-18 meeting to reduce the bond buying programme. The first step may be to taper monthly purchases by US$10 billion to a US$75 billion pace, according to the median estimate in the Bloomberg survey of 48 economists. They said buying will probably end by mid-2014.

The Fed may keep overall monetary policy stimulus unchanged even as it tapers bond buying, by changing its forward guidance for unemployment or inflation, said ANZ's Tuck.

Little new information is expected to come from tomorrow's Reserve Bank of Australia meeting minutes because the bank's latest forecasts have already been published in its statement on monetary policy on Aug. 9, Tuck said.

Similarly, the annual meeting of central bankers and policy makers at Jackson Hole, Wyoming at the end of the week is unlikely to spark a short term move in currencies, he said. Still, topics for panel discussion such as how monetary policy from one country spills over into another will be of interest to currency markets, he said.

The absence of Fed chairman Ben Bernanke, European Central Bank president Mario Draghi and Bank of England governor Mark Carney means no major foreshadowing of future policy is expected, Tuck said.

Traders will also be keeping an eye on a slew of global manufacturing reports to be released on Thursday.

Stronger readings are expected for China and Europe, while the pace of expansion may slow in the US, supporting New Zealand dollar strength, Tuck said.

The release of UK second quarter GDP on Friday should help underpin a strengthening British pound, Tuck said.

In New Zealand, reports this week include the Reserve Bank's inflation expectations tomorrow, and credit card spending and tourist arrivals on Wednesday.

"Generally the New Zealand data is very supportive of the New Zealand economy and, absent of global concerns, you would expect the New Zealand dollar to appreciate on that information," Tuck said. "However what is going on offshore seems to be far more important for the currency market. Good data seems to be priced fairly well into the New Zealand side of the equation."

Also out early Wednesday will be the results of the latest GlobalDairyTrade auction of dairy products.

The kiwi didn't move much today after export certificates were revoked on four consignments of lactoferrin made by Westland Milk Products after unacceptable levels of nitrates were found in two batches.

BusinessDesk.co.nz

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