NZ Dollar Outlook: Kiwi may decline amid upbeat US jobs data as dairy auction weighs

Monday 5th January 2015

The New Zealand dollar may decline this week as US data points to a recovery in the world's largest economy while the first GlobalDairyTrade auction for the year weighs on the local market.

The kiwi will probably trade between 75.50 US cents and 78.50 cents, according to a BusinessDesk survey of seven traders, strategists and brokers. Five thought the currency would fall, while one expected it to remain relatively unchanged and one bet it would rise.

The US dollar index, which measures the greenback against a basket of currencies, touched 91.515, its highest level in nine years, reflecting investor optimism about a recovery in the US. The greenback has soared against the currencies of weaker economies, touching its highest in nine years against the euro after European Central Bank president Mario Draghi on Friday signalled the bank will step up its monetary stimulus early this year.

"The main focus for this week is going to be at the end of the week with US non-farm payrolls and US unemployment where expectations will be for a strong number," said Stuart Ive, senior dealer, foreign exchange, at OMF.

"We are seeing a lot of US dollar strength, mainly coming on the back of comments from the ECB chairman Draghi on Friday indicating that the EU will be going to quantitative easing in the true sense, ie buying sovereign bonds, sooner rather than later despite potentially upsetting the Bundesbank in doing so," Ive said.

Fonterra Cooperative Group's dairy auction on Wednesday is likely to add further downside pressure on the kiwi, as abundant milk supply continues to weigh on prices, he said.

"We are likely to drift back a little bit, but we are not going to fall like a stone," Ive said. "Our economy is still doing very well in comparison with other countries."

Other reports due in New Zealand this week include Auckland real estate agency Barfoot & Thompson's latest sales data, due tomorrow; the ANZ Commodity Price Index, due Wednesday and building permit data on Friday.

Those who bet the kiwi would remain neutral this week pointed to a relative strength index of 41.5, suggesting the currency is neither overbought nor oversold during quiet holiday trading.

The lower volumes and lack of major data were also cited as a reason the local currency could advance this week, along with a potential decline in the greenback following its recent gain.

In the US, traders will look over the minutes of the Fed's December policy meeting, to be released on Wednesday, as well as the latest jobs data. The ADP employment report is set for release on Wednesday, followed by weekly jobless claims on Thursday, and the government’s employment data on Friday. OMF's Ive said the US data may show employers added 240,000 workers in December, while the unemployment rate fell to 5.7 percent.

Other US data released in the coming days include motor vehicle sales, due today; PMI services index, ISM non-manufacturing index, and factory orders, due tomorrow; international trade, due Wednesday; and wholesale trade, due Friday.

Elsewhere, Australia will publish its latest trade data tomorrow, and retail sales figures on Friday.

China releases a slew of December data at the end of the week, with trade figures on Thursday, followed by monetary aggregates, inflation and producer prices on Friday.

BusinessDesk.co.nz

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