NZ Dollar Outlook Kiwi may rise as central banks meet

Monday 2nd July 2012

The New Zealand dollar may finish the week higher as markets digest the European Union's pledge to bail out the region's banks and as central banks around the world meet to discuss borrowing costs.

The New Zealand dollar held near a two-month high, recently trading at 80.12 US cents little changed from 80.08 cents just before 8am this morning. That's right in the middle of this week's predicted trading range of 78 cents to 81.80 cents, according to a poll of six analysts in a BusinessDesk survey.

On Friday, EU leaders agreed to use joint funds to bail out the region's banks following a two-day summit in Brussels. That has helped spur optimism that policymakers may be closer to resolving the euro-zone’s debt crisis. Finance ministers will enact the deal on loans to Spanish banks at a meeting on July 9.

"We still have doubts that Europe will come through with a credible plan so the New Zealand dollar's upside will be limited," said Peter Cavanaugh, senior client adviser at Bancorp. “Adding complexity to that picture this week are the meetings of the Reserve Bank of Australia, the Bank of England and the European Central Bank

The ECB could help keep some of Europe's optimism alive by opting to ease rates. It has held its benchmark interest rate at 1 percent since December. Economists are forecasting a cut of 25 basis points, according to the median average of 57 economists in a Bloomberg survey.

The Bank of England is expected to trim its interest rate on Thursday, which currently stands at 0.5 percent.

The New Zealand dollar rose to 78.09 Australian cents from 77.94 cents this morning. Economists are picking that the Reserve Bank of Australia will keep its target cash rate unchanged at 3.5 percent after it cut a quarter percentage point in June and half a percentage point in May.

The RBA's decision to cut rates was largely driven by the impact of the deteriorating situation in Europe, according to the minutes from its June meeting.

Investors will be eyeing the world's largest economy, the US, for further evidence of a recovery when June's non-farm payrolls are released on Friday. Economists polled by Reuters forecast an increase of 90,000 jobs and the US unemployment rate holding steady at 8.2 percent.

"It will be a keenly watched figure after such a poor number last month," said Stuart Ive, currency strategist at HiFX. "If we don't start seeing an improvement we will start hearing talk of Q3."

In June, the Federal Reserve Open Markets Committee extended its stimulus measure of replacing short-term bonds with longer-term debt by US$267 billion through the end of 2012.

Further US data out this week includes the Institute for Supply Management's manufacturing index and construction spending on Monday, as well as weekly jobless claims and mortgage data, ADP's private-sector payrolls report and the ISM's services-sector index on Thursday.

China, New Zealand's second-largest export market, released its performance manufacturing index over the weekend, which showed the weakest expansion in seven months. The index fell to 50.2 from 50.4 in May, according to government data.

In New Zealand this week, the Treasury's monthly economic indicators are out this afternoon.

That's followed by the ANZ commodity price index tomorrow and Fonterra's GlobalDairyTrade auction on Wednesday morning. The government's financial statements for the 11 months ended May 31 will be released on Friday.

BusinessDesk.co.nz

Comments from our readers

No comments yet