NZ Dollar Outlook NZ dollar may fall in week of event risks

Monday 5th November 2012

The New Zealand dollar may fall this week as President Barack Obama and Republican challenger Mitt Romney face off in polls, the Reserve Bank of Australia reviews interest rates and local jobs data is expected to show unemployment is falling.

The kiwi traded at 82.38 US cents from 82.44 cents on Friday in New York. The trade-weighted index was at 73.88 from 73.96. The kiwi will fall this week, according to four of six strategists in a BusinessDesk survey. The range was seen to be between 81 US cents and 83 cents with a downside bias.

One of the latest polls showed that President Barack Obama is slightly ahead of Mitt Romney in Ohio and Florida, viewed by many strategists as the two most important swing states. The NBC News/Wall Street Journal/Marist College survey of likely voters put Obama ahead of Romney in Ohio, 51 percent to 45 percent, and in Florida, 49 percent to 47 percent, according to Bloomberg News.

The results may take longer than feared to emerge with some estimates that storm-damaged New York will take two days to vote. Among policy changes if Romney wins are a winding back of QE3. US stocks dropped on Friday even after figures showed the world's biggest economy added more jobs than expected last month.

"The likelihood for shocks this week are going to be coming out of the US," said Derek Rankin, director at Rankin Treasury Advisory. "It is so finely balanced in the US."

Before Americans vote, the Reserve Bank of Australia is tomorrow scheduled to announce its review of monetary policy. The RBA will cut its cash rate to 3 percent from 3.25 percent, according to a Reuters survey of 20 economists. Such a move would narrow the gap with New Zealand's 2.5 percent official cash rate and may help lift the kiwi against the Australian dollar.

The New Zealand dollar last traded at 79.70 Australian cents from 79.73 cents on Friday in New York. That's up from 76.03 cents at the start of the year.

"The kiwi-oz cross rate could see some further appreciation based on interest rate differentials," said Tim Kelleher, head of institutional FX sales at ASB Institutional. He said Commonwealth bank of Australia, the parent company, has the odds of a cut at 50-50.

The double for New Zealand data this week is employment and labour figures. The labour cost index, out tomorrow, rose 0.5 percent in the latest quarter for an annual increase of 2.1 percent, according to a Reuters survey. Figures on Thursday are expected to show the jobless rate fell to 6.7 percent from 6.8 percent, while employment growth was 0.3 percent.

Bank of New Zealand strategist Mike Jones says his bank is expecting a jobless rate to come down to 6.6 percent, beating market consensus and helping lift the local currency. Still, the data series is "notoriously volatile," he said.

Also out this week are policy announcements from the Bank of England and the European Central Bank, both of which are expected to stand pat for now.

Adding to the European focus, the Greek parliament is scheduled to vote on the latest round of austerity measures needed to qualify for financial aid.

BusinessDesk.co.nz

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