NZ Dollar Outlook: Kiwi's ability to extend gains may hang on RBA decision

Monday 2nd April 2012

The New Zealand dollar’s ability to extend its gains this week may hang on how the Reserve Bank of Australia interprets strong Chinese manufacturing data when it reviews interest rates tomorrow.

The New Zealand dollar recently traded at 82.32 US cents up from 82.26 cents at 8am this morning. That’s right in the middle of this week’s range of 80.50 and 84 US cents, according to a BusinessDesk survey of six analysts. Three of the six predict the New Zealand dollar will finish the week lower, two higher and one declined to give a prediction.

China, New Zealand’s second-biggest export market, reported its manufacturing gauge rose to 53.1 from 51.0 in February. This is a contrast with the HSBC’s flash manufacturing, the unofficial reading of China’s PMI that showed the world’s second-biggest economy was headed for its fifth monthly contraction last week.

“I think the Chinese data is a plus for the beginning of the week,” said Imre Speizer, market strategist at Westpac Banking Corp. “I think the kiwi will continue rallying through until the London session and the US physical market opening.”

The New Zealand dollar weakened to 78.74 Australian cents from 78.99 cents at the close of trading in New York on Friday, having reached the highest in almost six months last week. The RBA will meet tomorrow to decide whether to cut rates, which remained unchanged on 4.25 percent from its March meeting.

“It is a positive note that the Australian dollar has outperformed the kiwi this morning with the market paring back expectations of a rate cut slightly,” said Sam Coxhead, currency adviser at DirectFX. “The RBA meeting will be pivotal tomorrow” to dictate the New Zealand dollar’s direction for the remainder of the week.

The RBA is expected to slash interest rates by 75 basis points over the next 12 months, according to the Overnight Index Swap curve, narrowing the gap with New Zealand’s record low official cash rate of 2.5 percent.

New Zealand’s central bank is seen lifting the OCR by 25 basis points in the next 12 months. It is a data heavy week in Australia with building approvals set for release today, retail sales on Tuesday and trade balance numbers on Wednesday.

The European Central Bank and the Bank of England are scheduled to meet this week to review interest rates. In the US, the focus will be on Friday’s employment numbers, with investors looking to see whether the world’s largest economy can build on its strong first quarter.

Unemployment data is expected to show American employers added 201,000 jobs in March, compared with 227,000 in February. The unemployment rate is expected to hold steady at 8.3 percent, according to economists polled by Reuters.

The US ISM Manufacturing PMI and the Federal Reserve meeting minutes are set for release on Tuesday. In Europe, Spain is the latest economy under the spotlight in the region’s debt crisis. Its government has announced it will raise taxes and slash spending to try to trim its budget by a third.

European finance ministers have agreed to increase the region’s ‘firewall’ to 800 billion euros in a further attempt to boost confidence and resolve to the region’s debt crisis.

In New Zealand, the ANZ National Bank Commodity Price Index will be released on Wednesday along with the results of Fonterra Cooperative Group’s GlobalDairyTrade auction. This is the first auction since the world’s biggest exporter of dairy products last week posted an 18 percent gain in first-half profit on increased sales and higher prices from its ingredients business.

The government’s financials for the eight months ended February will also be released on Wednesday. It will be a short week with a majority of financial markets closed on Friday for Easter.

A number of markets will remain closed on Monday, enjoying a four-day weekend, except the US.

BusinessDesk.co.nz

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