NZ Dollar Outlook: Kiwi to trade at elevated levels

Tuesday 7th February 2012

The New Zealand dollar may continue at elevated levels this week as employment data confirms the local economy is in recovery and investors await any signs of breakthrough in Greece’s debt impasse.

The New Zealand dollar recently traded at 83.33 US cents up from 83.15 cents yesterday at 5pm. That is right in the middle of a largely unchanged forecast range of 81.80 cents to 85.20 cents for the week, according to a BusinessDesk survey of five analysts. It reached a five-month high 83.79 cents on Feb. 3.

Growth-sensitive currencies like the kiwi are flying high on rising risk appetite even as sentiment in Europe is held captive by concerns Greece’s political leaders will fail to reach the conditions of a 130 billion euro bailout package. Meetings have been postponed another day, irking leaders and prompting German leader Angela Merkel to demand that Greece’s leaders fall into line.

“Greece needs to toe the line but Europe doesn’t want it to default either,” said Daniel Brdanovic, head of institutional sales of global markets at HSBC in Auckland.

In New Zealand, employment data will be the main focus this week. The Quarterly Employment Survey figures released today showed a 0.6 percent rise in the labour cost index in the three months ended Dec. 31, beating the 0.5 percent forecast by a Reuters survey of economists. The household labour force survey is set for release on Thursday, with economists predicting the jobless rate will slip back to 6.5 percent from 6.6 percent and the participation rate will edge up to 68.5 percent from 68.4 percent.

The employment data, “will be somewhere around market expectations,” said Kymberly Martin, market strategist at Bank of New Zealand. “I don’t think it will hugely influence the currency” though it means “the kiwi is vulnerable at any point to a surprise.”

Marton said developments in Europe have the scope to be a bigger influence on currency markets this week. “It will be interesting when something finally does come out of Europe – default is a less likely option given how much everyone has committed in time and energy,” she said.

The kiwi rose to 77.75 Australian cents from 77.45 cents yesterday, ahead of the Reserve Bank of Australia’s interest rate review today, were it is expected to cut the benchmark rate by 25 basis points to 4 percent. That would narrow that gap with New Zealand’s 2.5 percent rate to 2 percentage points and boost the appeal of the kiwi dollar against the currency of the nation’s biggest trading partner.

Investors responded positively to better-than-expected US data, helping keep the kiwi dollar at five-month highs. American employers added 243,000 jobs in January, the most in nine months, and the unemployment rate fell to 8.3 percent from 8.5 percent in December, according to Labor Department data.

Traders will watch Federal Reserve Chairman Ben Bernanke's testimony on the economy to the Senate Budget Committee on Tuesday for fresh clues to his thinking on the world’s biggest economy. He'll also speak on Friday at the 2012 National Association of Homebuilders International Builders' Show on "Housing Markets in Transition."

The Bank of England is expected to boost the amount it is pumping into the struggling economy via asset purchases by 50 billion pounds, while the European Central Bank will wait until its March meeting to drop its current record-low key rate of 1 percent down to 0.75 percent, according to a Reuters poll.

In New Zealand, second-tier data set for release includes International visitor arrivals on Wednesday and the accommodation survey for December and electronic-card transactions for January on Friday.

(BusinessDesk)

BusinessDesk.co.nz

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