NZ Dollar Outlook Kiwi may fall this week as signs of US recovery support greenback

Monday 13th May 2013

The Canada-based mining giant, which has a market capitalisation of C$21 billion, didn't meet the human rights and environmental standards of the UN Global Compact, which the Super Fund uses as its benchmark for corporate behaviour, said Anne-Maree O'Connor, the fund's manager for responsible investment.

The kiwi dollar recently traded at 82.77 US cents, from 82.98 cents late Friday in New York, and earlier touched a seven-week low of 82.58 cents. The dollar may trade in a range of 81.50 US cents to 84 US cents this week with a downside bias, according to a BusinessDesk survey of five strategists and traders.

The US dollar index, a measure of the greenback against a basket of six major currencies, rallied through the end of last week to 83.143, its highest weekly close since July 2008, according to HiFX, and was last at 83.217.

"It's a case of the US dollar strengthening against most major currencies," said Dan Bell, currency strategist at HiFX. "Expectations are that the US economy is improving and it will outperform the rest of the world in the second half of the year."

New Zealand had been one of the most attractive currencies for speculators and that position is now reversing, Bell said.

Traders may push the greenback higher on signs of improving US retail sales in a report out tonight, said BNZ strategist Mike Jones. Expectations are for a 0.3 percent decline in the month although the ex-auto figure may be key as lower gasoline prices in April likely boosted non-auto spending, he said.

"The risk is we see a relatively upbeat number which could add to the support in the short term," Jones said.

Also in the US this week, traders will be watching a speech by the Federal Reserve Bank of Philadelphia President Charles Plosser, indications of homebuilder sentiment from the NAHB/Wells Fargo Housing Market index, April industrial production and housing start figures, jobless claims and the Empire manufacturing index.

A Wall Street Journal report on Friday said the US Federal Reserve is planning to slow its policy of quantitative easing, winding down an unprecedented US$85 billion-a-month bond-buying program on confidence the US economy is improving.

Quantitative easing in the US has helped underpin higher-yielding currencies such as the kiwi and driven stock markets higher. Any sign of weakness in equities could be taken as a sign traders are betting QE is coming to an end as the US economy improves, said Derek Rankin of Rankin Treasury Advisory. Should stocks remain strong, it suggested US dollar gains were short term, he said.

Locally, a report tomorrow may show New Zealand retail sales rose 0.8 percent in the first quarter from the previous three months, according to a Reuters survey of eight economists.

Results of the latest GlobalDairyTrade auction of dairy products are due out early Thursday morning, followed by the BNZ- BusinessNZ Performance of Manufacturing survey for April.

Also on Thursday, the National-led government reports its fifth budget where it is expected to say it is on track for a surplus in the 2015 financial year, despite extra spending on reconstruction from the Canterbury earthquake.

The government may detail plans to improve housing affordability by increasing supply, UBS economist Robin Clements said in a note. The national median sale price jumped 7 percent in April from a year earlier driven by increases in Auckland and Christchurch, according to Real Estate Institute figures released today.

The budget is likely to focus investor attention on the relative strength of the New Zealand economy and push the currency higher, said BNZ's Jones.

"The budget is going to highlight the fact that New Zealand remains in a relatively enviable position as far as the rest of the world goes," he said, citing higher relative interest rates and strong commodity prices. In comparison, the US economy still has some hurdles to overcome to achieve sustainable growth, he said.

The New Zealand dollar's slide was unlikely to be sustained and exporters would probably buy the currency at the 81.50 US cent to 82 cent level to bring home their overseas revenue, Jones said.

Meanwhile, the monthly ANZ-Roy Morgan consumer confidence report will provide an update on sentiment on Friday. The measure has increased in four out of the last six months to sit at an above-average level.

BusinessDesk.co.nz

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