NZ Dollar Outlook Kiwi range-bound until US government impasse resolved

Monday 7th October 2013

The New Zealand dollar may be range-bound this week, ending largely unchanged, as investors wait on the sidelines for the US government to end its deadlock.

The local currency may trade between 81.50 US cents and 84.50 cents this week, according to a BusinessDesk survey of 10 traders and strategists. Six expect the currency to be largely unchanged with only a slight bias either way, while two expect it to decline and two expect a gain. The kiwi recently traded at 83.06 US cents from 83.12 cents at 8am in Wellington this morning.

Investors are sitting on their hands as they await the outcome of US government talks on a budget impasse, as the Oct. 17 deadline looms for Congress to raise the government's debt ceiling or risk an historic default, which would likely cause global market volatility.

The currency "will be pretty neutral on the week," said Tim Kelleher, head of institutional FX sales in New Zealand at ASB Bank. "I expect the US dollar to stay weak on the back of the US government problems and then the kiwi will just edge up slightly. There's nothing else really this week to drive us at all."

US economic data, including a key employment report, has been delayed following a partial shutdown of government services last week after Congress failed to agree on the Federal budget.

"As the stalemate between Republicans and Democrats continues, the shutdown is now in its sixth day meaning that the markets are getting nervous that agreement may not be reached to raise the US$16.7 trillion debt limit, spurring investors to exit US dollars and its assets," Bancorp Treasury said in a note today. "The closer we get, the more nervous markets will get, which could cause significant volatility in the week ahead."

On Thursday morning New Zealand time, traders will be eyeing the Federal Reserve's minutes from its last meeting in September for further detail on the central bank's unexpected decision not to start tapering its US$85 billion a month bond-buying programme.

Also on Thursday, the Bank of England is expected to keep its benchmark interest rate unchanged at 0.5 percent.

In New Zealand this week, the focus will be on the NZIER Quarterly Survey of Business Opinion tomorrow which is expected to show confidence improved in the third quarter. On Wednesday, the latest release of house price data by state valuer Quotable Value will be eyed for any early signs of a pullback ahead of high debt lending restrictions which came into force Oct. 1.

A report on electronic card transactions for September is also due on Wednesday, followed by the BNZ-BusinesssNZ PMI of manufacturing activity on Thursday and the food price index on Friday.

In Australia today, markets are closed in New South Wales, Queensland and South Australia for Labour Day. Tomorrow, traders will be eyeing the NAB Business Confidence report for signs of a rebound, alongside a pickup in the ANZ job advertisements data.

An Australian government report out Thursday may show the participation rate increased in September after falling in recent months, with the unemployment rate remaining steady at 5.8 percent.

Traders have recently pulled back their expectations for Reserve Bank of Australia interest rate cuts. They are pricing in just 5 basis points of cuts to Australia's benchmark rate over the coming year, compared with expectations for a 13 basis point reduction on Sept. 30, according to the Overnight Swap Curve.

Tomorrow, traders will also be eyeing a Markit Economics and HSBC report on Chinese services activity for September, for an indication of how Asia's largest economy is tracking.

BusinessDesk.co.nz

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