NZ Dollar Outlook Kiwi may gain as investors focus on future rate hike; overlook GDP, tapering

Monday 16th September 2013

The New Zealand dollar may gain this week as investors overlook a temporary dip in second-quarter growth and a modest start to tapering in the US to focus on a looming interest rate hike next year.

The local currency may trade between 79.50 US cents and 83.50 cents this week, according to a BusinessDesk survey of nine traders and strategists. Five expect the currency to advance while four expect it to decline. The kiwi recently traded at 81.91 US cents from 81.34 cents at 8am in Wellington.

The New Zealand dollar has jumped 5 percent so far this month as a strengthening local economy heightens expectations of rising interest rates. Last week, the Reserve Bank said rate increases would likely be required next year, adding half a percentage point to its forecast track of the 90-day bank bill rate, seen as a proxy for the official cash rate.

"I like kiwi higher because it's got strong momentum, it's been rising for the last couple of weeks and it doesn't look anywhere done from a technical point of view," said Imre Speizer, senior market strategist at Westpac Banking Corp. "The fundamentals for kiwi took a step upwards after the Monetary Policy Statement last week because they formalised their forecasts and they were mostly upgraded, particularly the interest rate track.

"The Reserve Bank has now pushed up its own interest rate predictions to be about the same as where the market is," he said.

All eyes this week are on the US Federal Reserve, which is expected to scale back its US$85 billion of monthly bond buying by a modest US$10 billion to US$15 billion following its Sept. 17-18 meeting.

"They will kick off tapering but it will be modest and it is fully priced and there will be nothing out of that to push the US dollar any higher," said Westpac's Speizer.

In New Zealand, a report Thursday is expected to show second-quarter growth slowed to a 0.1 percent rate in the second quarter, from 0.3 percent in the first quarter as the country experienced its worst drought in 70 years.

Traders will likely ignore the softer growth because it reflects an historical temporary dip, said Westpac's Speizer.

A report on Tuesday is expected to show New Zealand had a $1.81 billion current account deficit in the second quarter compared with a surplus of $660 million in the first quarter, according to Reuters poll.

On Wednesday, the latest GlobalDairyTrade auction is expected to show prices eased as global supply picked up.

Separate reports on August migration and credit card spending are due Friday.

Meanwhile, the minutes of the Reserve Bank of Australia's last meeting will be scoured tomorrow for signs that the bank is likely to cut its benchmark rate further as Australia's economy slows.

The Bank of England is also scheduled to release the minutes of its last meeting on Wednesday, which could see forecasts upgraded in light of a recent run of strong data, according to Westpac's Speizer.

BusinessDesk.co.nz

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