NZ Dollar Outlook Kiwi may rise vs. Aussie on prospects for better growth, higher rates

Monday 27th May 2013

The New Zealand dollar may advance against the Australian dollar this week as investors shy away from Australia's slower growth prospects and reducing interest rates.

The New Zealand dollar may trade between 83.04 Australian cents and 85.11 cents this week, with an upside bias, according to a BusinessDesk survey of five traders and strategists. It recently advanced to 83.85 Australian cents, from 83.58 cents at 5pm on Friday, and earlier touched 84.25 cents, the highest since January 2009.

Australia's central bank, which has cut borrowing costs by 2 percentage points over the past 19 months, is likely to further reduce its benchmark rate as it tries to spur industries such as construction to pick up pace while mining investment peaks. In contrast, New Zealand is expected to hike rates as inflationary pressures from the Canterbury rebuild and Auckland housing pressures spill over to the rest of the economy and the growth outlook is buoyed by demand for the nation's food products.

"The New Zealand dollar is seen as more attractive than the Australian dollar given the outlook for our economy is improving whereas the outlook for Australia has been a little bit weaker," said Dan Bell, a currency strategist at HiFX. "No-one in New Zealand is experiencing a real surge in activity but we are muddling along in the right direction."

In New Zealand, building consents for April will be published Thursday while an ANZ New Zealand business outlook survey on Friday is expected to show continued strength.

Also on Friday, data on terms of trade, a measure of how much imports can be funded by a set amount of exports, will likely show growth of 1.5 percent in the first quarter, from a negative 1.3 percent in the fourth quarter, according to a poll of seven by Reuters.

The central bank is scheduled on Thursday to report its foreign exchange transactions for April, which will likely detail the extent of bank intervention recently disclosed by Governor Graeme Wheeler.

The Australian currency was one of the most favoured during the economic crisis and it is now returning closer to its historical norms, said HiFX's Bell.

"It's more of a mean reversion rather than a surge in the kiwi," Bell said. "It's got back to where it should be."

A slowing of demand for commodities out of China, as the Asian powerhouse struggles to maintain its pace of growth, is putting more downward pressure on the Australian dollar. China's National Bureau of Statistics will today release industrial profits data for April after a private report last week showed a contraction in the country's manufacturing industry.

In Australia, key data on Thursday will show first quarter capital expenditure and investment intentions for the 2014 financial year.

"These are crucial as the Reserve Bank of Australia looks for a revival in non-mining investment to take up the slack left by the peak in mining sector investment," Kymberly Martin, a strategist at Bank of New Zealand, said in a report.

Meanwhile, the New Zealand currency has extended its declines against the US dollar on optimism about an improving outlook for the world's largest economy.

The New Zealand dollar recently bought 80.74 US cents, from 80.90 cents in late New York trading on Friday. The kiwi may fall below 80 US cents on better economic data out of the US, Bell said.

Investors will eye speeches by Federal Reserve officials Eric Rosengren and Sandra Pianalto in the coming week for further clues on the timing of a tapering off of bond buying under the US central bank's quantitative easing policy.

In a bid to bolster growth by keeping interest rates low, the Fed has been pursuing QE, sometimes called printing money, by acquiring bonds at a rate of US$85 billion a month, swelling its balance sheet in the process. It has linked any decrease in the pace of buying to a drop in the jobless rate.

Boston Fed President Rosengren is scheduled to speak about the economic outlook on Wednesday in Minneapolis, while Cleveland Fed President Pianalto is due to speak about financial stability analysis on Friday in Washington.

Key to the Fed's next policy decision will be the May payrolls report on June 7. But this week, there's the S&P Case-Shiller home price index and consumer confidence numbers, as well as Richmond and Dallas Fed manufacturing surveys, all due on Tuesday.

On Thursday, the first revision of first-quarter GDP, pending home sales and weekly jobless claims are scheduled for release, followed by Chicago PMI and consumer sentiment on Friday.

Separately, the Bank of Japan will release its April meeting notes today, providing further insight into its intentions for monetary easing.

BusinessDesk.co.nz

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