Dollar outlook: Kiwi may nudge 72 US cents amid NZ data glut

Monday 21st September 2009

The New Zealand dollar may nudge 72 US cents this week, a level it last reached in August 2008, as a glut of domestic data helps underpin investor sentiment for the currency.

The kiwi could shed its gains if G-20 leaders hint at unwinding massive stimulus measures at their meeting this week.

Four of eight economists and strategists in a BusinessWire survey say the kiwi dollar will extend its gains for an eleventh straight week, though they suspect 72 US cents may be a stretch too far.

Two predict it may hold above 70 cents, while two forecast it will ease this week. New Zealand’s economy contracted 0.1% in the three months ended June 30, according to the Reserve Bank, and probably climbed out of recession this quarter. The current account deficit shrank to 7.5% of gross domestic product in the same period, according to a Reuters survey, from 8.5% the previous quarter.

“Local data developments will be important in dictating sentiment for the week,” said Mike Jones, strategist at Bank of New Zealand. “We’re expecting the market to take the kiwi higher while US dollar sentiment remains negative and risk appetite continues.”

Jones expects the currency “will have a go at 72 US cents in the near-term,” but should move back towards 68 cents over the next few weeks.

The currency slipped to 70.78 cents today from 71.08 cents on Friday in New York. Still, the greenback may extend its gains from a 12-month low if policy makers talk up the possibility of unwinding extraordinary stimulus measures they imposed in the face of the global financial meltdown last year.

Leaders of the Group of 20 nations meet in Pittsburgh this week.

If policy makers indicate they will rein in extraordinary stimulus measures, investors’ appetite for higher yielding, or riskier, assets may wane.

The Federal Open Market Committee reviews interest rates on Wednesday in the US, and while it isn’t expected to shift rates, traders will be looking for any sign of plans to unwind its asset purchasing programme.

Federal Reserve Chairman Ben Bernanke gave an upbeat assessment of the state of the world’s largest economy last week, saying it’s probably out of recession.

Imre Speizer, markets strategist at Westpac Banking Corp., said the Fed isn’t going to raise rates but may comment on some of its quantitative easing programmes.

“Any more hints for exiting than it made last time could see the US dollar rise,” he said. Still, Speizer said the kiwi dollar will probably gain against the greenback this week on the back of domestic data.

Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia, expects the kiwi to ease from its 13-month high this week as support for the greenback builds.

Only 3% of the market is bullish on the currency, and too many traders are holding short positions against the greenback and it’s only a matter of time before that snaps, Kelleher said.

Going short is where investors borrow an asset to sell betting it will fall in value and they can buy it at a cheaper price at a later date.

“With the Asian markets on holiday for most of this week, there’s going to be reduced demand for the kiwi on dips,” he said. Kelleher expects the currency will trade between 69 US cents and 71.50 cents this week.

Fonterra Cooperative Group, the world’s largest dairy exporter, will announce its annual result on Wednesday and is expected to give an update on its forecast pay-out to farmers.

NZX Agrifax last week boosted its expectations for the update 20 cents to $4.85 per kilogram of milk solids after prices soared 55% in the past two months of the cooperative’s globalDairyTrade online trading platform.

Five of eight strategists surveyed by BusinessWire predict the kiwi dollar will gain again on a trade-weighted basis this week. Two expect it to decline, and one forecasts it will trade in a range.

Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney, expects any strength in the kiwi from positive domestic data will be played out in the cross-rates rather than the greenback.

The second-quarter GDP data will probably be propped up by “net exports and consumer spending,” she said. Still, the gains will be “more against the crosses than the US dollar” which she predicts will struggle above 71 US cents, but hold above 70 cents.

The kiwi dollar was little changed at 64.62 on the trade-weighted index, or TWI, a measure of the currency against the Australian dollar, greenback, yen, euro and pound, from 64.73 on Friday in New York.

The kiwi may extend gains against the Australian dollar if the price of gold declines, according to Kelleher.

With the International Monetary Fund announcing it will sell 12.5% of its gold holdings, the price for the precious metal should ease, and push the Australian currency down.

The New Zealand dollar was little changed at 81.64 Australian cents from 81.72 cents on Friday in New York.

The government’s trans-Tasman taskforce is investigating the benefits of a common currency to New Zealand living standards, the NZ Herald reported.

Due to the relative size of the countries, New Zealand would be more likely to adopt its larger neighbour’s currency if such a proposal was to go ahead. Markets in Japan will be closed for most of this week, keeping volatility in the yen cross down to a minimum. The kiwi was little changed at 64.82 yen from 64.89 yen on Friday in New York.

Germany’s IFO survey of businesses out on Thursday is the highlight of European data this week, and is expected to show more signs of recovery in Europe’s largest economy. The

New Zealand dollar slipped to 48.19 euro cents from 48.34 cents on Friday in New York.

The pound underperformed last week as Bank of England and government officials speculated publicly around the need for interest rates to be cut further, or even enter negative territory. The kiwi climbed to 43.61 pence from 43.08 pence on Friday in New York.

Businesswire.co.nz

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