NZ Dollar Outlook: Kiwi may decline amid concerns about global growth

Monday 13th October 2014

The New Zealand dollar may decline this week as investors reduce their holdings of riskier currencies amid concern about slower global growth.

The kiwi will probably trade between 76 US cents and 80 cents this week, according to a BusinessDesk survey of 10 traders and strategists. Five predict the kiwi will fall this week, while three pick it to gain and two say it will remain largely unchanged. It recently traded at 78.39 US cents.

Currency markets have been volatile as investors grow jittery over the outlook for global growth. With a lack of major economic data scheduled for release this week, all eyes will be on central bank speakers from Europe, the US and Australia. Meanwhile in New Zealand, Fonterra Cooperative Group's GlobalDairyTrade auction will be closely watched amid speculation a further drop in prices could see the world's largest dairy exporter forced to again cut its forecast milk price to local farmers, weighing on the economy.

"There's not much economic information in New Zealand, the dairy auction is probably going to be the main event," said Imre Speizer, senior market strategist at Westpac Banking Corp in New Zealand. "It's fairly sparse on the economics front which means global sentiment will probably dominate."

Last week on Wall Street, the Dow Jones Industrial Average slumped 2.7 percent, while the Standard & Poor’s 500 Index sank 3.1 percent and the Nasdaq Composite Index plunged 4.5 percent as the International Monetary Fund downgraded its global outlook and disappointing data from Germany raised concern the euro-zone’s largest economy is headed for a recession.

"The global recovery continues, but is uneven and weaker-than-expected, and downside risks have increased," the International Monetary and Financial Committee said in a statement on Saturday. "A number of countries face the prospect of low or slowing growth, with unemployment remaining unacceptably high."

Federal Reserve Vice Chairman Stanley Fischer warned the US central bank might not raise interest rates as fast as expected if economic growth overseas falls short of expectations.

Westpac's Speizer said he will be keeping an eye on speeches from other central bank speakers this week, including Fed Chair Janet Yellen who is scheduled to speak at the Fed Bank of Boston Economic Conference on Friday.

First off the mark though, Chicago Fed chief Charles Evans speaks in Indianapolis today.

On Thursday, four regional policy makers will be giving speeches at different venues: Philadelphia Fed boss Charles Plosser, Kansas City Fed President Esther George, St Louis Fed chief James Bullard and Minneapolis Fed President Narayana Kocherlakota.

Speizer said he will also be watching the start of the US quarterly earnings season this week for a gauge on the performance of major companies.

As well as the dairy auction on Thursday, New Zealand also has data on September manufacturing and consumer confidence.

Meanwhile, Australia has business confidence tomorrow and consumer confidence on Wednesday.

Elsewhere, Chinese trade today,German economic sentiment tomorrow, US retail sales on Wednesday and European inflation and exports on Thursday will also be of interest.

BusinessDesk.co.nz

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