NZ Dollar Outlook: Kiwi may trade in a range as US holiday and month-end loom

Monday 23rd November 2009

The New Zealand dollar may trade in a range this week as America’s Thanksgiving holiday and month-end next Monday encourage investors to pare back their higher-yielding positions and take some profit in what may be a volatile week.

Four of nine economists and strategists in a BusinessWire survey predict the kiwi will trade in a range this week as holidays in Japan and the U.S. ahead of month-end next week erode investors’ appetite for risk. Three forecast the currency will decline this week, and another expects it to trade in a range with a downward bias. One economist predicts it to range-trade with a bias upwards.

The U.S. dollar has eked back some of its losses this year as American investors prepare their positions for month-end next Monday, with the Thanksgiving holiday on Thursday in the U.S. and many people likely to take the Friday off as well. The Dollar Index, a measure of the greenback against the yen, euro, pound, Canadian dollar, Swiss franc and Norwegian krone, climbed 0.4% to 75.65.

Since August, “there’s been a bit of profit-taking happening at the end of month” which could see the kiwi dollar come under pressure early next week, said Derek Rankin, director of Ranking Treasury Advisory. “This will give exporters the opportunity to add cover on dips.” He predicts the currency will trade in a range of between 71 U.S. cents and 75.20 cents. The kiwi sank to 72.02 cents from 72.90 cents on Friday in New York.

Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia, said the Dollar Index will be a key barometer for currency markets this week, with investors beginning to pare back their short positions in the U.S. dollar.

A short position is when investors sell an asset in the expectation they can buy it at a cheaper price.

“There have been strong short positions in the U.S. dollar, and people are beginning to unwind these,” Kelleher said. “People are taking their money and selling out.”

Kelleher predicts the kiwi will fall this week, and said it may trade between 70.50 U.S. cents and 73.30 cents.

A lot of data out of the world’s largest economy should push around currency markets, even though the U.S. has a short week.

Housing is expected to continue its recovery when existing home sales and the house price index are released this week, while an annualised update on third-quarter gross domestic product is forecast to show growth in the world’s largest economy slowed to 2.9%.

U.S. consumer confidence is expected to edge lower in November as the outlook for America’s economic recovery dims, though Black Friday sales this week will be taken as a leading indicator as to how the retailers will fare in the lead-up to Christmas. The Federal Open Market Committee will release the minutes from its latest meeting, a week after Fed officials continued to talk down the prospect of an early rate hike.

Locally, the National Bank Business Outlook is expected to show businesses are cautiously optimistic about the state of the economic recovery. Last month, a net 48.2% of respondents expected better times in the coming year, down from a net 49.1% in September.

Mike Jones, strategist at Bank of New Zealand, said “given the environment and people’s sentiment, we might see that pull back a little bit” which would be reasonably important. Jones predicts the kiwi will pare its losses this week, though the holiday period will keep it “very choppy.”

Four economists surveyed predict the currency will trade in a range on a trade-weighted basis, with three predicting it to decline and two picking small gains.

The kiwi dropped to 64.65 on the trade-weighted index, or TWI, a measure of the currency against the greenback, pound, yen, euro and Australian dollar, from 65.12 on Friday in New York, and fell to 43.75 pence from 43.91 pence.

Rankin said the kiwi faces similar pressures to the Australian dollar, though it’s holding around the current level against the euro. The kiwi dropped to 78.95 Australian cents from 79.40 cents on Friday in New York, and declined to 48.58 euro cents from 48.91 cents.

The Japanese government pressures the Bank of Japan to print money and stimulate recovery in the world’s second-largest economy, and Rankin was surprised that investors were continuing to support the yen.

The kiwi declined to 64.23 yen from 64.79 yen on Friday in New York.

On the data radar this week is New Zealand’s trade balance on Friday along with the central bank’s expectation for two-year inflation.

In Europe, Germany’s IFO survey of business confidence and the U.K. puts out revisions to its third quarter GDP data.

Businesswire.co.nz

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