NZ Dollar Outlook Kiwi may decline as US dollar prices in improving US economic outlook

Monday 12th May 2014

The New Zealand dollar may decline this week as it comes up against a US dollar being buoyed by signs of stronger growth in the world's biggest economy.

The kiwi may trade between 84.75 US cents and 87.50 cents this week, according to a BusinessDesk survey of 10 traders and strategists. Seven predict the kiwi will fall this week, while three pick it to remain largely unchanged. It recently traded at 86.21 US cents.

The US dollar index, which measures the greenback against a basket of currencies, at the weekend hit its highest level this month, underpinned by a weaker euro and an improving US economy. The greenback may continue its advance this week as improvements in US data are priced into the currency.

"The bias is towards the downside due to a recently resurgent US dollar," said Imre Speizer, senior market strategist at Westpac Banking Corp in New Zealand. "US data surprises have been quite strong during the past few weeks. Our surprise index is at a 2009 high, extremely high, but the dollar hasn't followed it. Eventually it will wake up and follow those very strong data surprises."

US data scheduled for release this week include the NFIB small business optimism index, retail sales, and business inventories, tomorrow; Atlanta Fed business inflation expectations and the housing market index, due Wednesday; inflation, weekly jobless claims, the Empire State manufacturing survey, industrial production, and the Philadelphia Fed survey, due Thursday; and housing starts, due Friday.

"We have got a big stream of US data this week and if that looks strong also then I think the dollar will have to recognise that and rise," said Westpac's Speizer.

On Thursday, Federal Reserve Chair Janet Yellen is scheduled to speak at a Small Business Administration event in Washington. In her testimony to Congress last week, Yellen indicated that while the US economic outlook is improving, risks remain.

In New Zealand, the Reserve Bank's six-monthly Financial Stability report on Wednesday may weigh on the kiwi should the bank signal that less interest rate hikes are needed because of a bigger than expected slowdown in the housing market from high-debt lending limits.

In contrast, Thursday's 2014 New Zealand government budget will probably show a strengthening local economy, which will support the currency.

Other reports scheduled for release in New Zealand this week include house prices this afternoon, food prices tomorrow, retail sales on Wednesday and the performance of manufacturing index on Thursday.

Reserve Bank governor Graeme Wheeler will appear before parliament's finance and expenditure committee on Wednesday, while Finance Minister Bill English and Associate Finance Minister Steven Joyce will deliver post-budget speeches on Friday.

In Australia this week, releases include business confidence today, as well as home loans, house prices and the Commonwealth Budget tomorrow.

Reserve Bank of Australia head of financial stability Luci Ellis is scheduled to speak on Tuesday and Thursday in Sydney.

Elsewhere, traders will look to Thursday's reports on Eurozone GDP and inflation as they weigh comments from European Central Bank president Mario Draghi last week that the central bank will probably ease next month.

China has data on industrial production, fixed asset investment and retail sales tomorrow, while Japan publishes first quarter GDP on Thursday.

BusinessDesk.co.nz

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