NZ Dollar Outlook: Kiwi may fall on European elections, looming Chinese data

Monday 7th May 2012

The New Zealand dollar may fall from a 3 ½-month low this week as investors search for fresh clues on the pace of global growth, digest the implications of leadership changes in France and Greece and data due out of China. The New Zealand dollar recently traded at 79.13 US cents, the lowest since Jan. 18, down from 79.33 cents just before 8am this morning.

That's right in the middle of this week's trading range of 77 cents and 81 cents, according to a BusinessDesk survey of six analysts. All of the analysts surveyed predict the New Zealand dollar will finish the week lower.

The New Zealand rose to 61 euro cents from 60.68 cents this morning on speculation general elections in France and Greece may herald governments less committed to already-agreed austerity measures across the Euro-zone.

Defeated French President Nicolas Sarkozy handed control of Europe’s second-biggest economy to socialist Francois Hollande, who won about 52 percent of the vote. In Greece, voters cast doubt on whether the two main parties, New Democracy and Pasok, can form a coalition.The latest count suggested a bailout-supporting coalition could just scrape together a 1-vote majority, according to Bloomberg. The final vote hasn’t yet been confirmed.

"The chances of a united Europe working toward a recovery are less likely - you couple that with the New Zealand data last week and the calls by Bollard and politicians to lower the New Zealand dollar and it will go lower - the question is how low will it go?" said Peter Cavanaugh, senior client adviser at Bancorp.

At its April meeting Reserve Bank Governor Alan Bollard held the official cash rate at 2.5 percent citing the “restrained” outlook for inflation, while warning that the kiwi dollar’s strength may prompt a review of monetary policy if it persists without cause.

It is a data heavy week in China, New Zealand's second-biggest export market, with the country's trade balance due out on Thursday, followed by retail and production sales and the consumer price index on Friday.

"Any slowing in China's growth, given the market’s attitude towards the New Zealand and Australian dollars, will exacerbate the downside," Cavanaugh said. The People’s Bank of China has managed to slow the pace of growth without stalling the fastest-growing major economy, which expanded 8.1 percent over the March year. At the same time inflation has moderated, including in prices of food, a sensitive issue for China’s population.

Investors in the US will be looking to reports on wholesale trade, international trade, jobless claims, import and export prices and producer prices and consumers sentiment for clue about whether the world's largest economy remains on track.

Federal Reserve Chairman Ben Bernanke will speak at an annual conference on banking structure and competition on Thursday. Bancorp's Cavanaugh said, "There is little unknown to come out of the US - Bernanke would have to totally dismiss the state of the US economy or take immediate action - neither is likely."

Corporate earnings also continue in America this week with Disney and Cisco among those reporting. Of the 415 companies in the S&P 500 index who have so far reported results, 67.5 percent have exceeded estimates, according to Reuters. Australia, New Zealand's largest export market, will release building approvals, business confidence and retail sales today.

The Australian government is also preparing to release its budget tomorrow evening at about 9.30pm New Zealand time. "The market will be looking to see if they stick to their plans to deliver a surplus and does it stick to monetary policy," said Imre Speizer, market strategist at Westpac Banking Corp.

There is no significant data set for release in New Zealand today. The government's financial statements for the nine months ended March 31 are scheduled for release tomorrow, followed by the Reserve Bank's financial stability report on Wednesday.

This could impact the market’s thinking regarding the official cash rates outlook after the central bank left rates unchanged at 2.5 percent last month. The ANZ-Roy Morgan Consumer Confidence survey and the Bank of New Zealand's Performance of Manufacturing Index are scheduled for release on Thursday.

"The New Zealand PMI has been quite strong and given the market’s current frame of mind if we see that drop back it will add to weakness in the currency," said Kymberly Martin, market strategist at Bank of New Zealand. Electronic card transactions for April will be released by Statistics New Zealand on Wednesday, as well as the accommodation survey for March on Thursday and food price index for April on Friday.

BusinessDesk.co.nz

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