NZ Dollar Outlook Kiwi may fall as Italian election, Bernanke, BOJ lead event risks

Monday 25th February 2013

The New Zealand dollar may fall in a week when the Italian election outcome, testimony by Federal Reserve chairman Ben Bernanke and the appointment of a new Bank of Japan governor loom as the biggest event risks.

The kiwi dollar recently traded at 83.56 US cents, down from 83.73 cents in late New York trading on Friday. The trade-weighted index was little changed at 76.50, as the kiwi gained against the pound, the yen, and the Australian dollar and fell versus the euro.

The New Zealand dollar heads into the week with a backwind of bullish bets, leaving it vulnerable to disappointment. Speculative long positions in the kiwi are at their highest since July 2007, according to Mike Jones, strategist at Bank of New Zealand, which is "a flashing red signal" given the currency has fallen in that past 4-5 times longs have built up.

Traders are fretting the Italian election won't be a clean result while Bernanke's two-day testimony comes after FOMC minutes showed division within the Fed about the scope of quantitative easing. Meantime, the kiwi has advanced against the yen today following media reports that Asian Development Bank chief Haruhiko Kuroda is Prime Minister Shinzo Abe's favoured BOJ candidate and shares his vision to stimulate the economy.

"There are a lot of events that could influence the kiwi in both directions," BNZ's Jones said. "The only thing we can be sure of is more volatility over the week." He's picking "some modest downside for the kiwi this week."

Traders and investors will also be kept busy with events closer to home. The Reserve Bank survey of expectations for the first quarter is due tomorrow and merchandise trade for January is out on Wednesday. Thursday brings the ANZ Business Outlook and Australian capital spending for the fourth quarter, and spending intentions, amid widespread expectations investment in the mining sector is peaking.

Bernanke's semi-annual update for US lawmakers on Tuesday and Wednesday will be closely watched after minutes from the latest Fed meeting sparked concern the central bank might ease or end its stimulus measures sooner than expected.

"In terms of what happened last week in the minutes you would be crazy to think there won't be some debate on how to back the bus out of the blind alley," said Alex Sinton, senior dealer at ANZ New Zealand. "There is no easy out and there will be market volatility."

Sinton said there's scope for further movements in the pound, with the market "yet to fully digest the UK downgrade" by Moody's Investors Service to Aa1 from Aaa. It would not surprise the market if Standard & Poor's were now to follow suit, he said.

The kiwi recently traded at 55.20 British pence from 54.93 pence in New York on Friday.

BusinessDesk.co.nz

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