NZ Dollar Outlook Kiwi may struggle for direction this week on light data

Monday 24th March 2014

The New Zealand dollar may struggle for direction this week, reflecting the limited amount of new data for markets to digest.

The local currency may trade between 84 US cents and 87 cents this week, from 85.40 cents at 8am, according to a BusinessDesk survey of nine traders and strategists. Three expect the currency to remain relatively unchanged, four expect it to gain and two say it could fall.

In New Zealand, only the February trade balance on Thursday is scheduled for publication where another chunky monthly trade surplus is expected. Elsewhere, investors will be keeping an eye on potential flare ups in Ukraine and indications of how growth is tracking in China, where March figures on manufacturing are due today.

"There's no startlingly threatening data out this week, which of course makes the currency vulnerable to a sharp move if there is a shock, if there is no shock and the data is as boring as everybody is predicting it, then it is likely to reflect in a boring week for the currency," said Bancorp Treasury Services client advisor Peter Cavanaugh. The local currency "is really feeding off external movements."

Today, the focus will be on China's release of the HSBC flash manufacturing purchasing managers index for March as investors try to gauge how Asia's largest economy has fared in the first quarter. Economists expect the measure will remain in contraction but edge up to 48.7, from a seven-month low of 48.5 in February. China is New Zealand and Australia's largest trading partner.

Top Chinese officials, including Vice Premier Zhang Gaoli, over the weekend reaffirmed the country will introduce market-based interest rates and a market-based exchange rate for the yuan, Reuters reported.

Bancorp's Cavanaugh says investors will likely be keeping an eye on the recent strong devaluation of the yuan on concern it may provoke other countries to encourage their currencies lower to bolster exports.

The tightly-controlled Chinese currency, also known as the renminbi, posted a record weekly loss last week as the People's Bank of China cut its daily reference rate to the lowest level since November, after widening its trading band with the US dollar.

"The movements in the renminbi won't go unnoticed," Cavanaugh said. "It threatens another currency war."

US president Barack Obama is scheduled meet Chinese counterpart Xi Jinping in the Hague today, Reuters reported.

Investors will also be keeping an eye on developments in Ukraine after Russia's annexation of Crimea, Cavanaugh said. Heads of the world's leading industrial democracies will hold a Group of Seven meeting without Russia, on the sidelines of a nuclear security summit in The Hague this week to consider further responses to the crisis, Reuters reported.

A report on German business confidence tomorrow will be closely watched for signs that concern about Ukraine may have weighed on Europe's biggest economy. An update on the outlook for Europe may come in a speech from European Central Bank president Mario Draghi in Paris tomorrow.

Closer to home in Australia, Reserve Bank deputy governor Philip Lowe will speak in Sydney to the ASIC annual forum on Tuesday and the Centre for International Finance & Regulation on Wednesday. The Australian central bank will release its half yearly update to its Financial Stability Review on Wednesday.

Australian central bank governor Glenn Stevens will speak to the Credit Suisse Asian Investment Conference in Hong Kong on Wednesday, as will New Zealand's Finance Minister Bill English.

The New Zealand dollar has lagged the performance of the Australian currency over the past week as investors see more upside to come out of our closest neighbour while optimism towards the New Zealand dollar has been sated, Cavanaugh said.

Later today, Europe's flash PMIs and the US Markit PMI for March will be released. European PMIs are expected to confirm a slow recovery while the US data is expected to remain solid at around 57.

Reports on UK and Japanese inflation this week will probably show the measures remain below the goals of the countries' central bankers, according to Bloomberg polls.

Investors will be listening attentively to speeches by Federal Reserve officials this week after new chair Janet Yellen surprised markets last week by signalling US interest rates may rise earlier than expected.

Reports in the US this week will be eyed for signs the country is emerging from a colder-than-usual winter.

BusinessDesk.co.nz

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