NZ Dollar Outlook: Kiwi may gain on global growth, ECB lending

Monday 27th February 2012

The New Zealand dollar may gain this week on speculation economic figures out of the US and China will show global growth remains intact, while European lenders are expected to gorge on the European Central Bank’s second round of lending.

The New Zealand dollar recently traded at 83.68 US cents, up from 83.52 cents at 8am. That’s right in the middle of the largely unchanged forecast range of 82.50 cents to 85.50 cents this week, according to a BusinessDesk survey of five analysts.

The European Central Bank’s second long term refinancing operation begins on Wednesday, with the region’s banks forecast to borrow up to half a trillion euros of cheap cash, according to Reuters.

The Frankfurt-based ECB will lend banks as much money as they ask for against eligible collateral. At the first round of lending in December the ECB provided a record 489 billion euros to banks. It has previously offered banks unlimited 12-month loans.

“The New Zealand dollar is stubbornly stuck in this range,” said Kymberly Martin, market strategist at Bank of New Zealand. “Kind of ironically a large take up (of ECB cash) could be taken quite positively by the market – this could drive the kiwi up out of its recent range."

Growth-sensitive currencies like the kiwi are searching for signs global growth remains on track, with the US, the world’s largest economy, set to release data on January durable goods orders on Tuesday and the ISM factory activity barometer for February on Thursday. China, the world’s second-largest economy, will release its manufacturing measure with the official Purchasing Manager's index on Thursday.

The New Zealand dollar was little changed at 78.07 Australian cents just before midday from 78.08 cents at the close of trading in New York on Friday, amid a leadership battle between Prime Minister Julia Gillard and former foreign minister Kevin Rudd.

Leadership of the party will be voted on today, with Rudd heading for an almost certain defeat. Gillard initially ousted Rudd as leader of the party in 2010 in a coup that almost consigned the Labor Part to a one-term reign.

In New Zealand, merchandise trade figures for January showed an unexpected deficit of $199 million in January, turning from a revised surplus of $306 million a month earlier. Minus a one-off aircraft purchase, the nation would have registered a surplus of $14 million, smaller than the $200 million figure forecast in a Reuters survey of economists.

“I think from a confidence perspective the New Zealand data released this week will help exporters and importers see how things are playing out broadly,” said Michael Hollows, currency strategist at HiFX.

Local data set for release this week includes, the national employment indicator for November and December 2011 released on Tuesday, followed by building consents on Wednesday and overseas trade indexes (volumes and prices) for the December quarter on Thursday. The ANZ Commodity Price Index will be released on Friday.

BusinessDesk.co.nz

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