NZ Dollar Outlook Kiwi may decline as Federal Reserve heads towards September tapering

Monday 26th August 2013

The New Zealand dollar may decline this week as investors prepare for the Federal Reserve to start tapering its bond buying programme next month, putting upward pressure on the greenback.

The local currency may trade between 76.40 US cents and 80.50 cents this week, according to a BusinessDesk survey of 10 traders and strategists. Four expect the currency to decline, three expect it to gain and three say it will likely remain unchanged. The kiwi recently traded at 78.20 US cents from 78.11 cents at 8am in Wellington.

Investors are pulling funds out of emerging markets and moving back into US assets as a revival in the world's largest economy turns the Fed's attention towards tapering its US$85 billion a month bond buying programme. That's putting downward pressure on currencies such as the New Zealand dollar, which has gained as the Fed's stimulus undermined the greenback.

"The big driver of kiwi/US will be expectations of Fed tapering being pushed up and down from day to day," said Imre Speizer, senior currency strategist at Westpac Banking Corp, who expects tapering to start next month. "It could be very, very small but that will keep the market from letting the US dollar slide much if at all. That will basically underpin the US dollar and if the US dollar is going to be underpinned then a lower kiwi/US falls out of it."

Traders will be eyeing speeches this week by Fed officials James Bullard, Jeffrey Lacker and John Williams for guidance on the Fed's plans.

At their July meeting, Fed officials said they were "broadly comfortable" with chairman Ben Bernanke's plan to unwind purchases later this year. Some 65 percent of economists expect the Fed to begin tapering at its Sept. 17-18 meeting, according to a Bloomberg survey.

Other data from the US may be mixed this week, said Westpac's Speizer.

A report on durable goods orders tonight will likely be softer while the August Dallas Fed factory index will be flat. Tomorrow, a report may show US house prices weakened in June, a measure of consumer confidence probably slipped in August and the Richmond Fed factory index for August was probably flat.

Still, US growth will probably be revised up on Wednesday and a report Thursday could show jobless claims fell back to pre-recession levels, according to Westpac.

Meanwhile, in New Zealand this week, the ANZ business confidence survey on Thursday is expected to show continued strength, and ongoing growth is likely in Friday's report on July dwelling consents.

New Zealand economic momentum has slowed over the past few months, underpinning a weaker kiwi, said Westpac's Speizer.

In Australia, where the economy is weakening, reports are scheduled for release on second quarter balance of payments, second quarter construction, new home sales, capital expenditure and credit.

BusinessDesk.co.nz

Comments from our readers

No comments yet