NZ Dollar Outlook Kiwi may hold at current levels this week as investors mull outlook for tapering

Monday 11th November 2013

The New Zealand dollar may hold around current levels this week as investors mull the outlook for tapering in the US following stronger economic reports.

The local currency may trade between 80.80 US cents and 83.80 cents this week, according to a BusinessDesk survey of nine traders and strategists. Six expect the currency to remain unchanged while three say it may decline. The kiwi recently traded at 82.55 US cents from 82.34 cents at 8am in Wellington.

The market is focussed on when the Federal Reserve will pull back on its US$85 billion a month bond-buying programme after a report on Friday showed a key labour market indicator rose more than expected in October, even as the government shut down in the first half of the month. That followed better than expected third-quarter growth data the previous week, and prompted speculation the Fed may start tapering as early as next month.

"Most of the influence will be how the market settles down after that stronger jobs data on Friday night, it was way stronger than the market expected even with the Federal furlough in there," said Tim Kelleher, head of institutional FX sales New Zealand at ASB Bank. "It is just going to bring the talk of a December taper back to the table again, which should be positive for the US dollar."

A reduction in the programme supports the greenback because it reduces the amount of US dollars in circulation, boosting its value.

Still, the New Zealand dollar has been supported by buyers at around the 82 US cent level, with the 200-day moving average around 81.85 cents, said ASB's Kelleher.

The Fed's next meeting on Dec. 17-18 is expected to be the last where chairman Ben Bernanke hosts a press conference. Bernanke is stepping down after the Fed's January meeting, to be replaced by vice chair Janet Yellen.

Investors will closely watch Yellen's testimony during her confirmation hearing on Thursday in the US. On Wednesday, investors will also eye Bernanke's town hall meeting with educators in Washington.

"Yellen has not spoken for some time so expect her every word to be parsed for her policy views," Mike Jones, currency strategist at Bank of New Zealand, said in a note.

A Reuters poll on Friday showed that more US primary dealers now expect the Fed to start easing its stimulus before March; two weeks ago, a similar poll found the majority of dealers expected the central bank would not begin tapering before March.

This week is expected to get off to a quiet start as banks are closed in the US for Veterans Day public holiday.

Later in the week, New Zealand has October statistics for house prices and food prices on Wednesday, and third quarter retail sales on Thursday.

Reserve Bank restrictions on high-debt lending from Oct. 1 combined with higher mortgage interest rates will likely slow the housing market, but not until at least November, with turnover being affected ahead of prices, Westpac Banking Corp. said in a note.

The Reserve Bank is scheduled to release its six-monthly Financial Stability Report assessing the current state of the financial system on Wednesday, followed by a press conference fronted by governor Graeme Wheeler and deputy governor Grant Spencer.

On Thursday, traders will be eyeing the BNZ-BusinessNZ PMI for October for an indication of manufacturing activity. The gauge fell for the second month in September although quarterly averages have sustained strong expansionary and improving levels, according to a note by UBS New Zealand Robin Clements.

Also on Thursday, rising employment and wages, along with falling unemployment, should underpin an improving trend for consumer confidence in the ANZ-Roy Morgan consumer confidence report for November, Clements said.

BusinessDesk.co.nz

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