NZ Dollar Outlook Kiwi may decline this week as investors favour US assets

Monday 20th May 2013

The New Zealand dollar may decline this week as expectations of a US economic recovery lure investors to the world's largest economy and the greenback.

The kiwi dollar recently traded at 80.83 US cents from 80.68 cents late Friday in New York, after touching an 8 ½-month low of 80.58 cents. The dollar may trade in a range of 79.20 US cents to 83 US cents this week, with a downside bias, according to a BusinessDesk survey of five strategists and traders.

Reports on Friday showed Americans felt better about their economic and financial prospects in early May, with consumer sentiment at its highest in nearly six years, while a gauge of future economic activity rose in April to near a five-year high. This added strength to a buoyant US currency. The US dollar index, a measure of the greenback against a basket of six major currencies, rallied through the end of last week to a three-year high.

"The US dollar looks like it has got more momentum," said Dan Bell, a currency strategist at HiFX.

The rate of growth in the US economy had been expected to slow in the second quarter as tighter fiscal policy starts to bite. But recent improvement, including in the labour market and retail sales, has suggested the recovery remains resilient.

That has spurred a shift to equities and fuelled speculation the Federal Reserve may end its policy of buying US$85 billion of Treasuries and mortgage-backed securities each month to boost growth.

Wall Street may push to fresh highs again this week as signs of recovery increase the attractiveness of US investments. On Friday, the Dow Jones industrial average rose 0.8 percent to close at a record 15,354.40, while the Standard & Poor's 500 Index added 0.95 percent to finish at a record 1,666.12. The Nasdaq Composite Index gained 0.9 percent to end at 3,498.97, its highest close in more than 12 years.

Meanwhile, gold fell for the seventh straight session as the precious metal shed some of its safe-haven appeal with the greenback's advance.

The resurgent US dollar will likely be tempered by dovish comments from Federal Reserve Chairman Ben Bernanke to congress scheduled for early Thursday morning New Zealand time.

"He's likely to be a little bit more downbeat" about the pace of recovery, said Sam Tuck, senior manager FX at ANZ New Zealand.

The Federal Reserve minutes are also slated for release in the US on Wednesday.

In New Zealand, traders will be looking to the Reserve Bank's survey of inflation expectations to be published tomorrow. The central bank is likely to be reviewing its own forecasts over coming weeks ahead of its next interest rate decision on June 13.

On Friday, data on the nation's trade balance for April is published.

Australia's Reserve Bank will tomorrow publish the minutes from its last meeting when it cut interest rates. They may suggest whether a follow-up rate cut in June is likely, Bank of New Zealand strategist Mike Jones said in a report.

The Australian and New Zealand dollars could come under pressure should a preliminary report out of China on Thursday show growth in its manufacturing sector slowed in May, said ANZ's Tuck. Weaker Chinese economic activity would point to slower Asian growth and less demand for products from Australia and New Zealand.

The preliminary HSBC purchasing managers' index is expected to measure 50.4 in May after falling to 50.6 in April, he said.

BusinessDesk.co.nz

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