NZ dollar may fall as greenback strengthens, drought weighs on sentiment

Monday 11th March 2013

The New Zealand dollar may fall with the greenback expected to blossom on the strength of last weeks' jobs report, and as drought looks set to hold back the local economic recovery.

The kiwi traded at 82.15 US cents at 5pm in Wellington from 81.96 cents at 8am, little changed from 82.11 cents at the close of trading on Friday in New York. The trade-weighted index was 75.89 from 75.80 last week.

The kiwi and Australian currencies tumbled on Friday after government figures showed the US added 236,000 jobs last month and the unemployment rate fell to a four-year low 7.7 percent. That's sparked speculation the Federal Reserve may wind down its unlimited bond buying programme earlier than expected, having linked an exit to bringing the jobless rate down to 6.5 percent.

"It seems like the US dollar strength from the payrolls is probably going to hang round for quite a bit this week," said Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. "That will cap the Aussie and kiwi somewhat."

A drought across much of New Zealand's North Island has also sparked fears about the strength of the local economy, with estimates it may trim $1 billion from production, and Finance Minister Bill English today warned it could sap the national tax take, according to a Bloomberg report.

"It's going to make quite a dent in rural activity," Tennent-Brown said.

Traders are waiting for the Reserve Bank's monetary policy on Thursday, where governor Graeme Wheeler may give the bank's view on the impact of the drought.

Analysts aren't expecting Wheeler to raise interest rates until the end of this year, or early next year, and recent speeches and a discussion document on the bank's macro-prudential tools have provided some insight into the bank's view on the exchange rate and bubbling property market.

The local currency climbed to 78.99 yen at 5pm in Wellington from 78.74 yen last week and traded at 80.33 Australian cents from 80.27 cents. It increased to 63.18 euro cents from 63.05 cents and advanced to 55.06 British pence from 54.98 pence.

BusinessDesk.co.nz

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