NZ Dollar Outook: Kiwi may decline this week as weaker data weighs

Monday 1st September 2014

The New Zealand dollar may decline this week as weaker commodity prices and building activity weigh on the local currency, while US data continues to improve.

The kiwi will probably trade between 82.20 US cents and 84.50 cents this week, according to a BusinessDesk survey of 11 currency traders and strategists. Nine expect the currency to decline, while two say it will probably remain broadly unchanged. None picked it to rise. The New Zealand dollar recently traded at 83.50 US cents.

Weaker prices for New Zealand's main export commodities are likely to show through in the ANZ monthly commodity price index tomorrow as traders look ahead to Fonterra Cooperative Group's fortnightly GlobalDairyTrade auction on Wednesday morning. Slower economic growth in the second quarter will probably also be reflected in data for building activity over the period, due out Wednesday, following a surge in the first quarter, analysts said.

"All of the data due this week is expected to be negative," Robin Clements, an economist at UBS New Zealand, said in a note.

Data published today showed a higher New Zealand dollar pushed down the price of imports at a faster rate than a drop in export prices, helping keep the nation's terms of trade at a 40-year high. Export prices fell 2 percent, led by dairy and forestry products, while import prices fell 2.3 percent on cheaper petroleum and machinery. Export volumes fell 5.3 percent, the biggest quarterly decline in six years, led by falling dairy, log and meat exports.

On Thursday, state valuer Quotable Value is scheduled to publish its latest housing data for August.

US traders have a shortened start to the week as markets are closed today in recognition of Labor Day. Tomorrow, manufacturing reports will provide an insight into how the world's largest economy is tracking, along with the trade balance on Thursday and the key non-farm payrolls report on Friday.

The Federal Reserve releases its Beige Book on Wednesday and investors will also hear from several Fed officials this week who will be speaking about the economic outlook and monetary policy.

The New Zealand dollar has declined against its US counterpart the past six weeks, mostly as a result of a strengthening US dollar, Imre Speizer, Westpac Banking Corp. senior market strategist, said in a note. That is expected to persist during the week ahead, he said.

US data surprises have been "extremely positive", with the bank's data surprise index at a 14-year high, Speizer said.

In Australia this week, the Reserve Bank is expected to keep its benchmark interest rate on hold at a meeting tomorrow. Australia also has manufacturing data today; the current account balance tomorrow; GDP on Wednesday; and the trade balance, retail sales and visitor arrivals on Thursday. Australian Reserve Bank governor Glenn Stevens is speaking to the Committee for Economic Development of Australia at a luncheon in Adelaide on Wednesday, which is open to the media.

Elsewhere, central banks in Canada, England, Japan and Europe are also meeting this week, although none are expected to change their benchmark interest rates.

BusinessDesk.co.nz

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