NZ Dollar Outlook: Kiwi may range-trade as data, earnings, MPS awaited

Monday 27th July 2009

The New Zealand dollar may trade within its recent range this week as better data and U.S. earnings provide support, while Reserve Bank Governor Alan Bollard may warn that the currency is too strong when he releases his review of monetary policy on Thursday.

Traders and investors have a full week of events to contemplate. At home, business confidence and building consents may print higher, while Bollard is expected to keep the official cash rate at 2.5%, with no prospects of an increase any time soon.

The U.S. government is preparing to sell a record US$115 billion of Treasury bonds and US$90 billion of bills, while gross domestic product for the world’s largest economy is expected to show the pace of contraction slowed to 1.5% in the second quarter from a 5.5% slump in the prior three months.

Added to that, some NZ$892 million of uridashi bonds are set to mature this week, while the launch of a Toshin fund in Japan may see some money allocated to kiwi dollar assets.

The kiwi dollar may trade in a range of 64 U.S. cents to 66.50 cents this week, according to a BusinessWire survey. It recently traded at 65.61 U.S. cents, little changed from Friday in New York.

Among companies on the Standard & Poor’s 500 that have posted second-quarter earnings, 75% have beaten analyst estimates, according to Bloomberg and the Dow Jones Industrial Average last week topped 9,000 for the first time since January.

“The kiwi will continue grinding higher on the crosses,” said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney. The currency “is very much a bellwether of firmer equities.”

Investors are awaiting the outcome of the U.S. Treasury auctions after strong demand in last month’s sales, including a jump in purchases by overseas central banks.

“If we still see strong interest from central banks, the main impact may be to support dollar-yen,” Trihn said. “That might help the kiwi against the yen as well.”

The kiwi dollar was little changed at 62.16 yen today and has climbed from 55.59 yen in the past two months.July is a peak month for maturing uridashis and traders are waiting to see how much is rolled over into other kiwi dollar assets.

The currency bought 79.89 Australian cents from 80.17 cents on Friday and was at 46.03 euro cents from 46.25. New Zealand’s NZX 50 Index climbed 1.2% to 2,998, a nine-month high.

“The appetite has been there (for Treasuries) because the alternatives have not been very attractive,” said Robin Clements, senior economist at UBS New Zealand.He said risk appetite “has been coming and going and that gives you some wobbles in the currency – but generally not enough to be damaging,” driving the kiwi lower.

Businesswire.co.nz

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