NZ Dollar Outlook: Kiwi may decline amid dairy weakness, greenback strength

Monday 4th May 2015

The New Zealand dollar may decline this week amid weaker prices for exported dairy products and as the greenback strengthens.

The kiwi may trade between 73.80 US cents and 77 cents this week, according to a BusinessDesk survey of 10 currency advisers. Nine expect the kiwi to fall, one says it will remain largely unchanged and none expect it to increase. It was recently trading at 75.29 US cents.

The local currency has dropped 2 percent since New Zealand's Reserve Bank took interest rate hikes off the table at its review last Thursday. It may fall further this week, weighed down by weaker prices for New Zealand's largest export commodity, with prices expected to decline in Wednesday morning's GlobalDairyTrade auction. Meanwhile the greenback is picked to strengthen leading in to a key US jobs report on Friday.

"I think we are going to see a drop in dairy prices which will have a negative impact," said Peter Cavanaugh, client adviser at Bancorp Treasury Services. "Over the course of the week, markets are going into nonfarm payrolls with a more upbeat outlook."

Economists expect US companies added 225,000 nonfarm payrolls in April after the pace slowed to 126,000 in March, less than half the previous month’s increase. The unemployment rate is estimated to have fallen to 5.4 percent from 5.5 percent in March.

Bancorp's Cavanaugh says the kiwi may be dented further should the Reserve Bank of Australia cut interest rates as expected at its review tomorrow, as traders may price in a higher chance that the Reserve Bank of New Zealand will follow suit.

Traders are currently pricing in a 73 percent chance that the RBA will cut rates at the meeting, and a 16 percent chance of the RBNZ cutting rates at its next meeting, according to the Overnight Index Swap Curve.

In New Zealand today, the ANZ Commodity Price Index is scheduled for release at 1pm.

Auckland real estate agency Barfoot & Thomson is due to publish its latest monthly housing market data tomorrow, and the Motor Industry Association is also due to provide its monthly data on new vehicle sales.

New Zealand publishes first quarter labour market data on Wednesday, with economists in a Reuters poll expecting the unemployment rate fell to 5.5 percent from 5.7 percent as growth in labour costs slowed to 0.4 percent, from a 0.5 percent pace in the previous quarter.

In Australia, the focus will be on the RBA's interest rate review tomorrow. Australia also has building approvals data today, trade data tomorrow, retail sales data on Wednesday and employment data on Thursday.

The HSBC China Purchasing Managers' Index is due out this afternoon, while the HSBC Services PMI is due Wednesday. China also has trade data on Friday and inflation on Saturday.

Elsewhere, Federal Reserve chair Janet Yellen is scheduled to give a speech to the Institute for New Economic Thinking Conference on Finance and Society in Washington DC on Wednesday.

Meanwhile, the UK has a general election on Thursday. The Bank of England's scheduled policy meeting is set for the same day, however it is delaying the announcement of its decision until May 11 to avoid any election impact.

BusinessDesk.co.nz

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