NZ Dollar Outlook Kiwi may weaken as investors shun growth sensitive currencies

Monday 30th September 2013

The New Zealand dollar may decline this week as investors shun growth sensitive currencies amid a possible US government shutdown.

The local currency may trade between 81 US cents and 84.05 cents this week, according to a BusinessDesk survey of nine traders and strategists. Five expect the currency to decline while two expect it to advance and two say it will remain unchanged. The kiwi recently traded at 82.63 US cents from 82.80 cents in Wellington this morning.

The New Zealand dollar may be on the back foot this week as growth sensitive currencies fall out of favour amid rising political uncertainty ahead of a potential US government shutdown as Congress fails to reach agreement on the budget. Later in the week, attention will turn to a US non-farm payrolls report as investors look for signs of more positive data which may prompt the Federal Reserve to start pulling back on its monetary stimulus, which would support the greenback.

"US politics are likely to get a reasonable amount of attention to start the week with the US government looking likely to go into shutdown," Sharon Zollner, senior economist at ANZ New Zealand, said in a note. "However the real story this week is activity data, with US, Europe and China updates."

Key data scheduled for release this week include reports on European, Chinese and US manufacturing which will give economists an indication of how their respective economies are tracking.

All eyes will be US employment data scheduled to release on Friday which is closely watched by the Fed. Investors continue to assess when the Fed will pull back on its US$85 billion a month bond-buying programme, after it unexpectedly chose not to taper the programme this month.

"Friday's US non-farm payrolls will be the overwhelming focus as investors continue to assess the chances of an October/December Fed taper," Mike Jones, currency strategist at Bank of New Zealand, said in a note.

Still, there is some uncertainty about whether the crucial data will be released on schedule given the Bureau of Labor Statistics may be one casualty of a Federal government shutdown this week.

Another political battle is looming as failure to raise the US government's borrowing authority by mid-October could result in a US debt default which would further disrupt the US economy.

In New Zealand this week, prices are expected to continue their positive tone in Wednesday's GlobalDairyTrade auction and the ANZ commodity price index.

Meanwhile, central banks in Australia, Europe and Japan aren't expected to change their key rates when they meet this week.

BusinessDesk.co.nz

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