NZ Dollar Outlook Kiwi set to move lower as Ukraine tension, Fed taper weigh

Monday 17th March 2014

The New Zealand dollar may decline from elevated levels this week as concerns about tensions in Ukraine and a likely pullback in stimulus by the Federal Reserve weigh on the currency.

The local dollar may trade between 83.40 US cents and 86.50 cents this week, according to a BusinessDesk survey of nine traders and strategists. Six predict the kiwi will decline this week, while one expects an increase and two see it largely unchanged. The kiwi recently traded at 85.36 US cents from 85.25 cents at 8am.

Investors are cautious, favouring the safe haven Japanese yen, after Crimean voters in a weekend poll chose to break with Ukraine and join Russia, prompting concern about retaliation from the West. Also weighing on the kiwi this week, the Federal Reserve is expected to continue to pull back its stimulus by US$10 billion a month, adding strength to the greenback.

"Recent elevated levels have left the kiwi somewhat extended and those two major factors will weigh on us this week," said Stuart Ive, senior advisor at OMF. "That may find the kiwi struggling a little bit to gain any further ground against the US dollar."

The Federal Reserve this week holds its first monetary policy meeting chaired by Janet Yellen and economists expect she will push to continue the policy of reducing stimulus. The decision is scheduled for release on Thursday morning New Zealand time.

Also in the US this week, data on industrial production and housing should bounce following poor weather, while February inflation likely stayed tame, UBS economist Robin Clements said in a note.

In New Zealand this week, fourth quarter data is released on the balance of payments on Wednesday and gross domestic product on Thursday.

GDP rose 0.9 percent in the final three months of 2013, based on a Reuters survey of 11 economists. The current account gap narrowed to $1.4 billion for an annual deficit of $7.4 billion, or 3.3 percent of GDP, a separate survey showed.

The data is unlikely to knock the New Zealand dollar off its perch, ANZ Bank said in a research note.

On Wednesday morning, the latest GlobalDairyTrade report is published, and prices may be under pressure from higher production.

On Friday, tourist arrival data for February is released at 10:45am, while the ANZ-Roy Morgan consumer confidence survey for March will be released at 1pm and credit card spending for February will be published at 3pm.

In Australia, traders will be eyeing tomorrow's release of the Reserve Bank of Australia's minutes from their meeting this month.

Little new information is expected from the minutes, while other Australian data on car sales, goods imports and skilled vacancies are second tier and unlikely to move markets, UBS's Clements said.

Meantime in the UK this week, data will be released on unemployment and the UK budget while the minutes of the Bank of England's last meeting are scheduled for publication.

BusinessDesk.co.nz

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