NZ dollar may fall amid escalating Iraqi violence

Monday 16th June 2014

The New Zealand dollar may fall this week as growing Middle East tensions weigh on investor confidence.

The kiwi increased to 86.84 US cents at 5pm in Wellington from 86.68 at 8am and 86.66 cents at 5pm in Wellington on Friday. The trade-weighted index edged up to 80.85 from 80.68 last week.

Investors sought relatively safe assets, lifting the price of gold to a three-week high, as increasing violence in Iraq, where Prime Minister Nouri al-Maliki is seeking to regain territory held by the breakaway al-Qaeda group, Islamic State in Iraq and the Levant, has markets nervous OPEC's second biggest producer of crude oil may plunge deeper into conflict. A BusinessDesk survey of 10 traders and strategists predicts the kiwi will probably trade between 84.90 US cents and 87.50 cents this week. Four predict the kiwi will remain largely unchanged, while three expect it to fall and three say it may rise.

"The kiwi will remain elevated, but I think the risk-off trade will be more of a problem in the market" as investors are spooked by the rising Middle East tensions, said Martin Rudings, senior advisor at OMF. "The market is already long on New Zealand dollars so it'll be like a fire in a cinema, the first one out the door or a rush for the exit, so I am a wee bit wary, and I certainly wouldn't be buying kiwi dollars up at these levels with what's going on."

Government data is expected to show the economy grew 1.2 percent in the first quarter of the year, from a 0.9 percent pace in the fourth quarter of 2013, according to economists polled by Reuters. The rise in GDP will mark the fifth quarter with growth of 1 percent of above in the past six years and will feed into sentiment of a strong economy.

"We're expecting a good number from GDP, even if it is slightly less than what's expected, it is still probably a pretty strong number compared to most other countries around the world," said Rudings.

The kiwi rose to 92.31 Australian cents at 5pm in Wellington from 91.99 cents last week. Tomorrow the Reserve Bank of Australia releases the minutes to this month's review. The central bank is keeping rates low in a bid to stimulate sluggish economic growth and is unlikely to make any changes, said Rudings.

The New Zealand dollar was almost unchanged at 88.32 yen from 88.31 yen on Friday. The currency traded at 51.11 British pence at 5pm in Wellington from 51.09 pence last week and advanced to 64.09 euro cents from 63.92 cents.

BusinessDesk.co.nz

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