NZ Dollar Outlook Kiwi may advance, buoyed by upbeat economic data

Monday 2nd December 2013

The New Zealand dollar may rise this week as improving economic data strengthens the case for interest rate rises next year.

The kiwi may trade between 79.80 US cents and 83.50 cents this week, according to nine currency strategists and traders surveyed by BusinessDesk. Seven expect the currency to advance while two say it may decline. The local currency recently increased to 81.62 US cents from 81.31 cents at 8am in Wellington.

New Zealand's positive economic momentum is expected to continue to show through this week, supported by data on trade, commodity prices and building activity. That is likely to firm up expectations that New Zealand will be the first country in the developed world to raise its benchmark interest rate next year.

"We are expecting the tone of the data due this coming week to be upbeat," Robin Clements, a senior economist at UBS New Zealand, said in a note.

Today, a report showed New Zealand's terms of trade, which measure the quantity of imports the country can buy with a set amount of exports, climbed to its highest level since December 1973 as dairy prices surged in the quarter, while cheaper electrical machinery kept a lid on increases in import prices.

Tomorrow, the ANZ Commodity Price Index for November is expected to show world prices for New Zealand's main commodity exports are having a good upward run, while a report on third quarter building activity on Wednesday may bolster estimates for third quarter economic growth.

Other releases this week include the GlobalDairyTrade auction on Wednesday while on Friday data is published on third quarter wholesale sales, which contribute to GDP.

It is a busy data week ahead for Australia, with measures of inflation, home prices, manufacturing, building consents, company profits, retail sales, exports, current account, GDP, construction and trade, as well as the central bank's interest rate review tomorrow.

Economic data from Australia has been more encouraging recently, with signs the Reserve Bank of Australia's 225 basis points of rate cuts are flowing through to the economy, ASB Bank economists said in a note.

In the US, traders will be awaiting the key non-farm payrolls report on Friday which the Federal Reserve eyes for signs of how the labour market is tracking. The world's largest economy probably added 180,000 private payrolls in November, down from 212,000 the previous month, according to a Reuters poll of 36 economists.

A strong result above 200,000 would increase speculation that the Fed will start cutting back its US$85 billion a month of asset purchases as early as this month, which would drive the US dollar higher, ASB Bank economists said. A reduction in the programme supports the greenback because it would reduce the amount of US dollars in circulation, boosting its value.

The US also has reports this week on manufacturing, construction, employment, home sales, trade, factory orders, GDP, personal income and consumer confidence.

Neither the Reserve Bank of Australia, the Bank of Canada, the Bank of England nor the European Central Bank is expected to change their benchmark interest rates when they meet to review policy this week.

BusinessDesk.co.nz

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