NZ Dollar Outlook Kiwi may gain on positive risk sentiment, commodities, China

Monday 7th January 2013

The New Zealand dollar may gain this week as rising equity markets and the power of Chinese demand to lift commodity prices help underpin positive risk sentiment Down Under.

The kiwi dollar recently traded at 83.03 US cents from 83.18 cents in New York trading on Friday. The currency has recovered from as low as 81.53 cents on Boxing Day. It may trade in a range of 81.80 cents to 84.70 cents this week, with a bias to the upside, according to a BusinessDesk survey of five traders and strategists.

The Standard & Poor's 500 Index closed at a five-year high on Friday, following a week in which politicians in Washington managed to avert the fiscal cliff. The 11th hour agreement provides a temporary reprieve for the world's biggest economy, with the next battle set for February when the Congress needs to agree to lift the US$16.4 trillion debt ceiling.

Closer to home, the price of iron ore has climbed about 70 percent in the past four months, driven by renewed demand from China, adding to positive sentiment for commodity linked currencies such as the Australian and New Zealand dollars. China is Australia's biggest export market and New Zealand's second-largest.

"More evidence of China's recovery will help Australian and New Zealand commodity prices and therefore the currencies," said Imre Speizer, senior markets strategist at Westpac Banking Corp. "We'll stay with this positive trend - in the week we're more likely to test the upside than the downside."

Speizer said the kiwi may test 84 US cents this week, with little on the domestic calendar to disturb its progress.

The only local economic data due for release this week is November building consents on Wednesday and November merchandise trade on Thursday.

Globally, the Bank of England's monetary policy committee announces its latest review on Jan. 10 and the governing council meeting of the European Central Bank meets and has a media conference on the same day. Both are expected to keep interest rates unchanged.

The kiwi dollar recently traded at 73.47 yen and is near its strongest level in more than four years. The yen has declined as the Bank of Japan has come under increasing pressure from the new Japanese government to weaken its currency and take other steps to stimulate the economy.

"2013 will continue to see us supported," said Alex Sinton, senior dealer at ANZ New Zealand. There are no quick fixes in Europe or the UK and the US is "still driving on Skippers Canyon road" by not yet solving the debt ceiling issues or the economy's underlying problems.

Rental car companies typically don't allow their vehicles on Skippers Canyon, a winding, steep gorge road near Queenstown.

Still, US Treasury bond yields have climbed from their 2012 lows and taken together with rising equity markets, indicate "there is a lot of hope" for global growth, said Peter Cavanaugh, of Bancorp Treasury Services.

Traders also took heart from last week's release of minutes of the most recent Federal Reserve meeting, which indicated some committee members want quantitative easing to end this year, Cavanaugh said.

BusinessDesk.co.nz

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