NZ Dollar Outlook: Kiwi may decline on weaker local data, more bullish Fed

Monday 15th September 2014

The New Zealand dollar may decline this week, weighed down by weaker local data and a more positive view of the greenback.

The kiwi will probably trade between 79.60 US cents and 83.40 cents this week, according to a BusinessDesk survey of 10 currency traders and strategists. Five pick the local currency to decline, three say it will probably remain relatively unchanged and two expect a gain. The kiwi was recently at 81.43 US cents.

New Zealand releases a slew of economic data ahead of this weekend's general election. Reports will probably show economic growth slowed in the second quarter while the current account improved and dairy prices remained weak in the latest GlobalDairyTrade auction. All eyes will be on the Federal Reserve early Thursday morning amid speculation its policy-making committee may be more upbeat about the outlook for the world's largest economy and the potential for higher interest rates.

"We’ve been US dollar bulls for a long time, and we're hoping to see that view vindicated on Thursday morning," said Bank of New Zealand currency strategist Raiko Shareef. "We also have New Zealand second quarter GDP (gross domestic product) which is expected to considerably slow from the first quarter, and then the dairy auction to boot. If everything goes the right way, I can very easily see us below 80 US cents."

The US dollar index, which measures the greenback against a basket of currencies, posted its ninth consecutive week of gains leading into the Federal Reserve meeting this week. That is the most weeks the index has gained consecutively since 1997 as some investors bet that improving US economic data may prompt the Fed to bring forward interest rate rises next year.

Still, some said the US dollar's recent strength left it at risk of a correction as traders "buy the rumour and sell the fact" should the Fed confirm it is edging towards a tightening bias, or on disappointment should the Fed fail to change its current stance.

The decision will be announced early Thursday morning Wellington time.

In New Zealand this week, data on Wednesday should show the annual current account deficit narrowed to $5.79 billion, or 2.5 percent of GDP, in the year through June, from a deficit of $6.3 billion or 2.8 percent, in the year through March, according to a Reuters poll.

Meanwhile, traders will be keenly watching the result of Fonterra Cooperative Group's latest fortnightly auction early Wednesday morning in anticipation that weak prices will continue.

GDP on Thursday is expected to show second quarter growth eased to a 0.6 percent pace from a 1 percent rate in the first quarter as a weaker primary sector weighed on agricultural-based manufacturing and exports.

New Zealand is scheduled to publish the latest figures on net migration for August on Friday, with the strong monthly gains expected to continue. The latest ANZ/Roy Morgan consumer confidence survey for September is also due out Friday.

Some traders speculated the kiwi may strengthen heading into Saturday's general election on reduced political risk. The ruling National party goes into the last week of campaigning with enough support to govern with just ACT's David Seymour and Peter Dunne of United Future, according Radio New Zealand's 'poll of polls' published today. National's latest four-poll rolling average was 47.1 percent.

Elsewhere this week, the Reserve Bank of Australia will tomorrow release the minutes of its last meeting which will be eyed for an insight into its view on the economy, while the Bank of England will publish the minutes of its last meeting on Wednesday.

BusinessDesk.co.nz

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