NZ Dollar Outlook Kiwi looks weak as market mulls local inflation, housing figures

Monday 20th January 2014

The New Zealand dollar looks likely to fall this week as investors consider how local inflation and housing figures will feed into the Reserve Bank's interest rate outlook, ahead of next week's policy review.

The local currency may trade between 81.20 US cents and 84.20 cents this week, according to a BusinessDesk survey of six traders and strategists. Four predict the kiwi will fall this week, while one expects it to gain and one sees it largely unchanged. It recently traded at 82.50 US cents from 82.62 cents at the New York close on Friday.

New Zealand's consumers price index is forecast to have fallen 0.1 percent in the final three months of 2013, for an annual rate of 1.5 percent, according to a Reuters survey of 11 economists. Local housing sales figures are also in focus as investors gauge the impact of Reserve Bank-imposed restrictions on the level of low equity home lending.

A benign inflation figure and slowing property market may spur investors to push out their expectations for an interest rate hike by the Reserve Bank, which has signalled tighter monetary policy this year. Traders have priced in 110 basis points over increases to the official cash rate over the coming 12 months, according to the Overnight Index Swap curve.

"We might see a slowdown in house sales and weak headline quarterly CPI numbers against the backdrop of a broadly rising US dollar," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "It would be an environment to see kiwi/US dollar selling."

Those pieces of local data are expected to be the major drivers of the kiwi this week as investors prepare for monetary policy reviews next week by New Zealand's Reserve Bank and the US Federal Reserve. While the RBNZ is expected to keep rates unchanged, the Fed will be watched for more withdrawal of stimulus in what will be chairman Ben Bernanke's last meeting in charge.

Another week of US corporate earnings season will also capture traders' attention, with investors looking for revenue growth rather than cost cutting measures.

Australian inflation data on Wednesday will be used as a bellwether for the trans-Tasman cross-rate, which soared to new eight-year highs last week on the diverging interest rate paths of the neighbouring economies. The kiwi dollar was recently at 94.15 Australian cents from 94.12 cents at the New York close last week.

Investors will be watching Chinese data today, including fourth-quarter gross domestic product figures, industrial production and retail sales, as they try to gauge the strength of the world's second biggest economy. Fears over the nation's financial sector re-emerged amid reports Industrial & Commercial Bank of China is refusing to bail out a troubled 3 billion yuan trust product.

Markets in the US are closed on Monday for the Martin Luther King holiday.

BusinessDesk.co.nz

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