NZ Dollar Outlook Views mixed as traders eye weaker US data, mull kiwi’s ascent

Monday 17th February 2014

The New Zealand dollar outlook is mixed this week as weaker economic data from the US and positive risk appetite underpin demand while traders mull whether the kiwi can continue its recent ascent.

The local currency may trade between 82 US cents and 84.80 cents this week, according to a BusinessDesk survey of 11 currency strategists and traders. Four expect the kiwi to rise and four expect it will remain relatively neutral, while three anticipate a decline. The New Zealand dollar recently bought 83.63 US cents from 83.77 cents at 8am.

Economic reports out of the US this week may show activity in the world's largest economy continues to be dented by cold temperatures and winter storms which have slowed retail sales, manufacturing and job growth. However, positive global sentiment appears likely to continue, bolstering demand for higher risk assets such as the kiwi.

"Our outlook for the US data for this week and for the many weeks ahead is for it to remain in a soggy state which should be a dampener for the US dollar and therefore supportive for kiwi/US," said Imre Speizer, senior market strategist at Westpac Banking Corp. in Auckland. "One factor is the soggy US data, the other is positive risk appetite, both of those should support the kiwi higher."

Today, US markets are closed for the Presidents' Day holiday. Reports to be released in coming days include the Empire State manufacturing survey and the housing market index, due Tuesday; housing starts and the producer price index, due Wednesday; consumer price index, weekly jobless claims, PMI manufacturing index, the Philadelphia Fed survey, and leading indicators, due Thursday; and existing home sales, due Friday.

Traders are waiting for weather-related impacts to pass through US data so they can better assess the underlying strength of the nation's economy, Speizer said.

Still, a 3.5 percent rally in the kiwi against the greenback so far this month is likely to give some investors pause.

"Markets may be a bit nervous about pushing the US dollar too much lower at this stage," said Ric Spooner, chief market analyst at CMC Markets in Australia. "While some risk adjustment for weaker US economic data is appropriate, the chances are this will turn out to be nearly all weather related so markets won't want to overdo it on the downside.

"We've had a pretty steep rally over the past couple of weeks and in these circumstances a short-term pullback would not surprise."

In New Zealand, a report today showed retail sales rose 1.2 percent in the fourth quarter, less than the 1.6 percent expected by economists. Separately, New Zealand services sector activity, which accounts for about two thirds of the economy, expanded for a ninth month in January, underpinned by a six-and-a-half year high in new orders.

The latest GlobalDairyTrade auction on Wednesday is expected to show demand remains robust while a report on Thursday will likely show producer prices were stable in the fourth quarter. Also scheduled for Thursday is the latest ANZ-Roy Morgan consumer confidence monthly survey.

Elsewhere, minutes from the latest meetings of central banks in Australia, the US and England will be scrutinised for further details behind decisions, while the Bank of Japan is expected to keep rates on hold when it meets tomorrow. Several Federal Reserve officials are also scheduled to give speeches this week.

BusinessDesk.co.nz

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