NZ Dollar Outlook: Kiwi caught in range before RBA, US jobs data

Monday 30th April 2012

The New Zealand dollar may be range-bound this week ahead of a likely interest rate cut by the Reserve Bank of Australia tomorrow and US jobs figures on Friday.

The currency recently traded at 82.25 US cents, little changed from 82.21 cents at 8am and from 82.19 cents at the close of trading in New York on Friday. That’s right in the middle of this week’s forecast range of 80.50 to 84 cents, according to a BusinessDesk survey of seven analysts.

Three of the seven analysts predict the kiwi will finish the week lower, two higher, one unchanged, the last refused to comment.

In the US, the world’s largest economy, investors will be looking for signs of improvement in the jobs market after figures last week showed America’s economy expanded less than forecast in the first quarter. Payrolls data due out on Friday probably rose by 165,000 workers, according to economists in a Bloomberg survey after jobs growth in March eased to 120,000, the smallest gain since October.

The ADP Employment report is also set for release on Wednesday and weekly jobless claims on Thursday.

“I think we will just be waiting to get through this data – payrolls on Friday is key,” said Daniel Brdanovic, head of institutional sales global markets at HSBC. “US data has been a key driver - people are just starting to price in Q3 and you have a weaker dollar across the board.”

The kiwi has gained about 4 percent against the greenback this year after Fed policy makers said they would hold off increasing monetary accommodation unless US economic expansion falters or prices rise at a slower rate. In January, it pledged to keep interest rates near zero until at least the end of 2014.

The kiwi dollar recently traded at 78.72 Australian cents from as low as 76.03 cents at the start of the year amid signs Australia’s economic growth is slowing and bets its central bank will cut interest rates as soon as tomorrow, narrowing the gap with New Zealand’s 2.5 percent official cash rate.

The Reserve Bank of Australia is expected to announce it will cut its 4.25 percent target cash rate on Tuesday, with traders pricing in 106 basis points of cuts over the next 12 months, based on the Overnight Index Swap curve.

“We are looking for the statement to see if it is one, two, three or four hikes that will follow,” said Imre Speizer, market strategist at Westpac Banking Corp. “The RBA cuts will perhaps signal more to come and that will perhaps be a negative for rates and a negative for the currency.”

The central bank kept the cash rate unchanged at 4.25 percent earlier this month, saying it wanted more time to assess the pace of inflation before contemplating further easing in monetary policy.

Figures out last week confirmed inflation was slower than expected up 1.6 percent against expectations of a 2.1 percent rate.

European Central bank president Mario Draghi will speak to reporters on Thursday after the bank’s policy meeting. Though investors aren’t expecting any changes to rates, following Draghi’s recent suggestions the euro-zone should adopt a “growth-compact”.

Elections in France and Greece will be held on Sunday, with French President Nicolas Sarkozy on track to lose his job to socialist challenger, Francois Hollande.

“The market feels like it is stepping into next weekend like it is stepping into a box of fire crackers,” said Peter Cavanaugh, senior client adviser at Bancorp. “It is extremely nervous.”

China, New Zealand’s second-biggest export partner, will release its official performance of manufacturing index reading on Tuesday.

In February, the gauge rose to 53.1 from 51.0 from February. The HSBC’s flash manufacturing, the unofficial reading of China’s PMI will be released later in the week. Both Japan and China are closed today for bank holidays.

The kiwi dollar didn’t move much after figures showed New Zealand posted a smaller-than-expected trade surplus, reflecting a drop in value of exports of dairy products, crude oil and fruit.

The trade surplus was $134 million last month for an annual surplus of $207 million, according to Statistics New Zealand.

Economists had expected a monthly surplus of $445 million and an annual surplus of $490 million, according to a Reuters survey. New Zealand residential building consents also out this morning rose to their highest monthly level in two years in March after growing demand for new housing in Auckland and Christchurch.

Building consents rose by a third to 1,394 worth $415 million.

The National Bank Business Outlook is due out this afternoon, followed by the quarterly employment survey and labour cost index for the March quarter on Tuesday.

Fonterra will hold its first milk price auction on Wednesday since reporting a 9.9 percent price drop a fortnight ago.

ANZ Commodity Price Index is also due out on Wednesday, while Statistics New Zealand household labour force survey for the March quarter will be released on Thursday.

BusinessDesk.co.nz

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