NZ Dollar Outlook: Kiwi may decline as optimism builds about US recovery after Jackson Hole

Monday 25th August 2014

The New Zealand dollar may decline this week as growing optimism about a recovery in the US economy strengthens the greenback.

The kiwi will probably trade between 82.20 US cents and 84.70 cents this week, according to a BusinessDesk survey of 11 traders and strategists. Nine expect the kiwi to decline this week, while two expect it to remain relatively unchanged. None expect it to gain. The local currency recently traded at 83.49 US cents.

The New Zealand dollar has fallen to its lowest in six months, taking it to levels not seen since the Reserve Bank began hiking interest rates in March. The greenback has started the week on a stronger footing after Federal Reserve chair Janet Yellen was less dovish than expected about the outlook for the world's largest economy in her weekend speech to an annual gathering of the world's central bank governors at Jackson Hole, Wyoming.

While Yellen reiterated her view that there is still significant slack in the US labour market, she also said increases in the Federal funds rate target may come sooner than the Federal Reserve Open Market Committee currently expects and could then proceed at a more rapid pace. The US dollar strength since the gathering suggests officials may have been even more upbeat in informal discussions following the speech, traders said.

""People think (the US economy) is stronger than the Federal Reserve is saying," said Tim Kelleher, head of institutional foreign exchange sales in New Zealand at ASB Bank. "I think they need to go sooner rather than later" in raising interest rates.

In New Zealand this week, traders will be eyeing tomorrow's trade statistics for July where falling dairy prices may weigh on exports. Monthly data on low equity housing loans is also due tomorrow. On Wednesday, food price data for July is released while on Thursday the Reserve Bank publishes details of its foreign exchange transactions for July. On Friday, ANZ business confidence survey is due, as well as building consent data for July.

Australia has a report on second quarter construction activity on Wednesday, and capital expenditure and investment intentions on Thursday.

Elsewhere, UK banks are closed for a holiday today.

After last week’s better-than-expected economic reports on the US housing market, investors hope for more good news in coming days. Data scheduled for release including new home sales, due today, the FHFA house price index and S&P Case-Shiller home price index, due Tuesday, and the pending home sales index, due Thursday.

There is a flurry of other US economic reports scheduled for release, including the Chicago Fed national activity index, PMI services flash, and Dallas Fed manufacturing survey, due today; durable goods orders, consumer confidence, and Richmond Fed manufacturing index, due Tuesday; gross domestic product, weekly jobless claims, and Kansas City Fed manufacturing index, due Thursday, and Chicago PMI and consumer sentiment, due Friday.

In Europe, eyes will be on the Ifo Institute’s monthly survey of economic sentiment among business leaders in Germany, due today, and especially the latest reports on euro-zone inflation as well as unemployment, due Friday. Japan also releases its latest inflation data for July on Friday.

BusinessDesk.co.nz

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