Dollar outlook: Kiwi may fall on rising jobless, stress tests

Monday 4th May 2009

The New Zealand dollar may fall this week as government figures are likely to confirm that the recession has pushed the unemployment rate above 5% for the first time in six years.

While in the US, the Treasury is set to release results of its so-called stress tests on American banks.

The currency is heading lower according to five of six strategists and economists in a BusinessWire survey. Two predict it will push down to a range of 54.50 US cents and 55 cents, a two-week low. The kiwi gained from Friday as risk appetite was stoked by a surge in US equities and higher commodity prices and the greenback slipped on better-than-expected data in the Eurozone. Today, the New Zealand dollar gained to 57.34 US cents from 57.09 cents on Friday in New York.

The currency has “significant domestic risk events to navigate in the Household Labour Force Survey” out on Thursday, said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney. “The labour cost data suggests a downside risk that the numbers will weigh on the kiwi.”

The jobless rate is expected to increase to 5.3% in the first-quarter, according to a Reuters survey, its highest level since the March quarter in 2003. Unemployment rose to 4.6% in the three months ended December, a six-year high. The Treasury has forecast unemployment to rise to 6% by September, with a peak of 7.5% in 2011.

The number of full-time equivalent employees fell 1.7% for the year ended March 31, according to Statistics New Zealand figures today, the lowest level since the September quarter in 2007. Seasonally adjusted total paid hours declined 1.9% for the period.

Australian employment data, also out on Thursday, is expected to show an increase in the unemployment rate to 5.9% from 5.7%, according to a Reuters survey, while the US has shed about 5.1 million jobs since the recession began in December 2007. American non-farm payrolls are out at the end of this week, and unemployment is expected to rise to 9.5% by the end of this year, according to a Bloomberg survey.

Commonwealth Bank vice president of institutional banking and markets Tim Kelleher was the only voice of dissent in the survey, calling a mildly positive bias on the kiwi currency. Kelleher said the US dollar had been “drifting off” as investors prepare for the results of the Obama administration’s so-called stress tests for American banks and better-than-expected manufacturing data in Europe. He predicted it would stay in a range 54.50 US cents and 59 cents this week.

Citigroup Inc., one of the companies being assessed by the US government, needs up to US$10 billion in new capital to meet the Obama administration’s requirements, according to the Wall Street Journal. The administration pushed out the announcement of the stress test results until May 7.

The Reserve Bank of Australia reviews its cash rate tomorrow, and will likely hold rates at 3%. New Zealand’s central bank slashed the official cash rate to 2.5% last week, increasing the yield differential between the countries. The kiwi was little changed at 78.03 Australian cents from 78.03 cents on Friday in New York.

“There won’t be any surprises” if the RBA keeps rates on hold, said Imre Speizer, currency strategist at Westpac Banking Corp. The RBNZ has “decoupled from the RBA,” after its cut to the OCR and statement that rates would remain low until late next year, he said.

The European Central Bank reviews its benchmark rate this week and may cut lower the rate to 1%, according to Danica Hampton, currency strategist at Bank of New Zealand. The kiwi was little change at 43.09 euro cents from 43.07 cents on Friday in New York.

“We expect the ECB will extend the maturity of its liquidity measures, from its current six months to nine or 12 months, and announce that it’s prepared to buy corporate paper or commercial loans,” Hampton said. “We do not expect an announcement to buy government debt at this stage.”

The Bank of England is expected to keep rates at a record-low 0.5%, according to a median forecast of a Bloomberg survey.

Golden Week will see Japanese markets closed until Thursday, which could exaggerate movements in the currency, Hampton said. The kiwi rose to 56.95 yen from 56.73 yen on Friday in New York.

On the radar this week is the ANZ National commodity price index, which may continue to show firmer prices for raw materials produced in New Zealand, and the latest Fonterra online auction of milk powder.

Fonterra Group Cooperative recently announced a 10 cent increase in its forecast payout to farmers to $5.20 a kilogram as dairy prices come back from their trough earlier this year.

Businesswire.co.nz

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