NZ Dollar Outlook Kiwi may retreat from elevated levels as Ukraine tensions weigh

Monday 5th May 2014

The New Zealand dollar may decline this week, weighed down by tensions in Ukraine, an improving US economy after spiking higher following US jobs data on Friday.

The local currency may trade between 84.80 US cents and 88.40 cents this week, according to a BusinessDesk survey of 10 traders and strategists. Six predict the kiwi will fall this week, while two expect it to gain and two pick it to remain largely unchanged. It recently traded at 86.61 US cents.

The kiwi today touched its highest in almost three weeks following US data on Friday which showed that even though more jobs were added in April, less people were seeking work and wages remained flat. The local currency may fall from its current elevated levels even as data this week is picked to show New Zealand unemployment fell to a five-year low on the back of a strengthening economy, traders said.

"The step higher that we saw on Friday doesn't seem to be based on much fundamentally, and should retrace," said Raiko Shareef, currency strategist at Bank of New Zealand. "That fall will be sharper if the major powers start wading into Ukraine's civil war."

Ukrainian officials have said the country is now "at war" with pro-Russia insurgents as the Ukrainian army tries to restore Kiev's control over Donetsk, near the Russian border. The US and the EU accuse Russia of fomenting the unrest, while Kremlin officials say they are getting "thousands of calls" from Ukraine seeking Russian help.

In times of uncertainty, investors tend to favour so-called safe haven assets such as the Japanese yen, Swiss franc, US dollar and gold.

In New Zealand this week, traders will be eyeing Wednesday's employment data which is expected to show the unemployment rate fell to 5.8 percent in the first quarter, marking the first time it is below 6 percent since early 2009.

The latest GlobalDairyTrade auction early Wednesday will be watched for tentative signs of stabilisation after recent price declines, economists said.

Meantime, Friday's release of electronic card transaction data for April is expected to show continued growth underpinned by an improving labour market and buoyant consumer confidence.

In Australia, the Reserve Bank is expected to keep interest rates unchanged at its meeting tomorrow with further details of its inflation and growth forecasts released in its Statement on Monetary Policy on Friday. Guy Debelle, the bank's assistant governor, financial markets, will speak as part of a panel at a Women in Banking and Finance lunch in Sydney on Friday which is open to the media.

Australia will publish its latest trade balance Tuesday, retail sales data Wednesday and unemployment figures on Thursday.

In the US this week, all eyes will be on Federal Reserve Chair Janet Yellen's testimony to Congress for insights into her thinking about the latest jobs report and underlying momentum in the economy. Yellen is scheduled to talk about the economic outlook before the Joint Economic Committee in Washington on Wednesday. She'll meet with the Senate Budget Committee the following day.

Investors will also be looking to Chinese trade figures for April on Thursday and inflation and loans data on Friday.

No change is expected from policymakers at the Bank of England and the European Central Bank when they meet on Thursday. President Mario Draghi's post-meeting press conference will be closely monitored to gauge policy makers' take on the region's inflation rate which has been below target.

Central banks in South Korea and Indonesia are also expected to keep rates on hold when they meet on Friday.

BusinessDesk.co.nz

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