Dollar outlook: Kiwi may reach 10-month high

Monday 3rd August 2009

The New Zealand dollar may rise to a 10-month high this week as optimism the global economy is on the road to recovery stokes investor appetites for higher-yielding, or riskier, assets.

Six of seven economists and strategists in a BusinessWire survey predict the kiwi will stay in its current range or rise this week, while one says it may decline with figures expected to show rising unemployment and a deteriorating jobs market in New Zealand.

Stocks on Wall Street rounded out their best July in 20 years on Friday, with the Dow Jones Industrial Average gaining 8.6% on the month to 9,171.61 as better-than-expected corporate earnings revived sentiment the global economy would begin to recover in the second half of the year.

The Dollar Index, a measure of the greenback versus the euro, yen, Canadian dollar, pound, Swiss franc and the Swedish krona, slipped 1.5% to 78.11, the lowest level since September, as investors eschewed the relative safety of the world’s reserve currency.

“The kiwi has a roundly stable outlook and is a little firmer,” said Brendan Marsh, from the foreign exchange desk at Bank of New Zealand. Marsh said the currency may trade between 65 US cents and 67.25 cents this week as offshore sentiment continues to hold the kiwi dollar up.

The New Zealand dollar jumped as much as 0.7% in trading today to as high as 66.44 US cents as traders said the greenback fell below a key technical level and sparked a sell-off across the board. It recently traded at 66.30 cents from 65.51 cents on Friday in New York.

Philip Borkin, economist at ANZ National Bank, said global sentiment is still the main driver in the currency market. This week’s Household Labour Force Survey, which is expected to show unemployment rose to a seven-year high 5.6% in the three months ended June 30, probably won’t have much impact on the kiwi.

“A turn is getting close with equity markets struggling around these levels,” but the ongoing optimism about the state of the global economy is encouraging investors to support the kiwi, he said.

Employment data will be a key global theme this week, with Australia and the US also announcing their jobless rates. Australian unemployment will rise to 6% from 5.8% according to a Reuters survey, while US Treasury Secretary Timothy Geithner said in an interview on ABC that he expects the jobless rate to peak in the second half of next year. US unemployment surged to 9.5% in June.

Darren Gibbs, chief economist at Deutsche Bank, predicts the market’s optimism will overshadow any negative surprises in the labour statistics, which is a lagging economic indicator, and he sees the kiwi rising this week.

He expects the currency will trade between 65 US cents and 66.50 cents. Fonterra Cooperative Group’s online auction of milk solids is a key event for the kiwi this week, according to Gibbs. “The currency could push higher” if the market starts to see increases in soft commodity prices creeping through, he said.

Robin Clements, economist at UBS New Zealand, was the sole dissenter in the BusinessWire survey, predicting the kiwi will fall this week as a weaker global labour market saps risk appetite and prompts investors to return to more conservative assets.

Central banks in Europe, Australia and England will review their monetary policy settings this week.

While all three banks are expected to keep their benchmark interest rates on hold, the market will be watching to see if the Bank of England expands its quantitative easing programme.

The kiwi was little changed at 46.45 euro cents from 46.44 cents on Friday in New York, and gained to 79.21 Australian cents from 79.18 cents last week.

The BusinessWire survey was split three-three on whether the New Zealand dollar would trade within a range or gain on a trade-weighted basis, with the seventh economist predicting it would decline.

The kiwi climbed to 61.60 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 61.36 on Friday in New York.

Businesswire.co.nz

Comments from our readers

No comments yet