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Dollar outlook: Kiwi may fall as QSBO, RBA sap risk appetite

Monday 6th July 2009

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The New Zealand dollar may fall this week amid expectations a survey of business sentiment will highlight ongoing weakness in the economy, while Australia’s central bank may keep its benchmark interest rate higher than New Zealand’s.

Four of six economists and strategists surveyed by BusinessWire predict the kiwi will fall this week with local data likely to show some fundamental problems with the New Zealand economy. Two economists expect the currency will continue to trade in its current range.

Investors may eschew higher yields this week as economists predict the New Zealand Institute of Economic Research’s Quarterly Survey of Business Opinion will highlight underlying weakness in the labour market and profit expectations. The Reserve Bank of Australia will probably keep its target cash rate on hold at 3%, above the RBNZ’s 2.5% rate, and investors will be looking for any hints of future rate hikes.  

The QSBO “is a good indicator across the economy, and we’re not just looking at the headline numbers,” said Imre Speizer, currency strategist at Westpac Banking Corp. “The RBA’s not going to do anything, but the important thing is if they give any hint of a rate hike.”  

The kiwi fell to 62.76 US cents from 63.30 cents on Friday in New York, and slipped to 78.98 Australian cents from 79.29 cents.  Speizer predicts the currency will fall against the US dollar this week, and will trade between 61.50 US cents and 63.50 cents. While he doubts the pressure on the downside will push it below 60 cents, Westpac forecasts it will fall to the mid- to high-50 cents this quarter as global company earnings lift volatility and erode risk appetite.  

Leaders of the Group of Eight nations will meet in Italy this week, and will not discuss the status of the greenback as the world’s reserve currency, according to a Reuters report.

India joined other emerging nations in airing concerns about the US dollar, and is expected to discuss the greenback’s status, among other issues, with Brazil, China, Mexico and South Africa in a parallel meeting.  

France called for more currency coordination over the weekend, but most countries want their own currencies to be weaker to help stoke demand for their exports and lift their economies out of recession, said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia.  

“The G-8 communiqué won’t mention the US dollar and will just put it in the too hard basket,” he said.  Kelleher expects the kiwi will trade between 61.70 US cents and 63.70 cents this week.  

John Horner, currency strategist at Deutsche Bank in Sydney, said the New Zealand dollar will probably trade between 61 US cents and 66 cents this week as it consolidates in its current range after going “too far, too fast” in recent weeks.  

While another small uridashi issuance has helped offset the unusually large value of maturities this month, the prospect of Japanese and European investment houses shifting their holdings to Australia may sap sentiment for the kiwi.  Municipality Finance will launch a $60 million bond at the end of the month, while Toyota Motor Credit Corp. hasn’t finalised the details of its latest issue.  

Some $4.6 billion worth of uridashi and eurokiwi bonds mature this month, compared to the usual $1-1.2 billion redemptions, and investors have tended to roll over around 26% of maturing eurokiwi bonds and 40% of uridashis, according to BNZ research.  

The New Zealand dollar fell to 60.16 yen from 60.69 yen on Friday in New York, and declined to 44.96 euro cents from 45.22 cents.  

The currency will probably decline on a trade-weighted basis according to four of six economists and strategists surveyed by BusinessWire. The remaining two said the trade-weighted index, or TWI, which measures the kiwi against the greenback, yen, euro, pound and Australian dollar, would trade within its current range.  

Horner expects the kiwi to make some gains against the Australian dollar, which has benefited from its resilient economy in the face of the global slump. He points out that the trans-Tasman nations are in reasonably similar shape, and the Australian currency has drifted a little too much against the kiwi.  

On the data radar this week is the ISM non-manufacturing composite, which measures activity in the service sector in the US, and New Zealand’s electronic card spending in June is released on Wednesday. The Bank of England will review interest rates on Thursday, and market participants will look for any word on its quantitative easing programme.

Businesswire.co.nz



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