NZ Dollar Outlook: Kiwi supported at current levels as risk appetite remains

Monday 16th November 2009

The New Zealand dollar may hold its gains and could push higher if data in the U.S. continues to erode optimism about the pace of recovery in the world’s largest economy.

Three of eight economists and strategists in a BusinessWire survey predict the kiwi will rise this week as data in the U.S. is expected to diminish the appeal of the greenback as a safe haven. Three forecast the currency to trade in familiar ranges this week, and the last two expect it to range-trade with an upwards bias. U.S. consumer confidence hit a seven-month low in November, according to the Reuters/University of Michigan Survey of Consumers, while the trade balance in the world’s largest economy surged 18% in September to US$36.5 billion on rising import volumes from China.

Government data out this week is expected to show retail sales increased 0.9% last month, according to a Reuters survey, though excluding automotive sales, it’s only forecast to rise 0.4% as Obama’s Cash for Clunkers programme winds down. The U.S. dollar eased on the weak data on Friday in New York, with the Dollar Index, a measure of the currency against a basket of six trading partners, down 0.3% to 75.17. The kiwi dollar climbed to 74.28 U.S. cents from 73.56 cents in the U.S. trading session.

“The New Zealand dollar will continue to ebb and flow in line with offshore equities and risk appetite,” said Mike Jones, strategist at Bank of New Zealand.

Jones said the currency should be capped around 75 U.S. cents this week, and said it looks good to buy on dips at around 73.50 cents.

U.S. President Barack Obama is touring Asia this week, and investors will be watching for comment around the level of the Chinese yuan when he meets with officials from the world’s fourth largest economy.

Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia, said Chinese officials have been complaining about the weakness of the greenback and calling for higher interest rates.

“The officials basically accused the U.S. of fuelling the speculative bubble,” he said. “We’ll be watching to see if the U.S. dollar bounces around a little” on any commentary from Obama’s visit.

Kelleher expects the kiwi will trade between 73.25 U.S. cents and 74.75 cents this week, and said “we’ll be selling on dips – anywhere in the mid 74 range looks good.”

The kiwi slipped to 5.07 yuan from 5.08 yuan on Friday in New York.

Derek Rankin, director of Rankin Treasury Advisory, expects the kiwi dollar will be underpinned by the export season going into the New Year, though he predicts the currency will range-trade this week, with a positive bias.

“Lambing is underway and there are a lot of products starting to get shipped,” Rankin said. “It should keep going up with the export season.”

The Reserve Bank of Australia puts out the minutes from its last meeting tomorrow, and investors will be looking to see if it expects to speed up its return to normal interest rates. The central bank was the first in the Group of 20 nations to being tightening monetary policy after the Australian economy avoided falling into recession, and has increased its employment rate over the past two months.

Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney, said last week’s employment data investors are looking to see if the central bank will hint at “hiking rates more aggressively.”

“There’s lots of focus on the word ‘gradual’ that has been the theme since the RBA started its tightening cycle,” she said. “Markets are looking to see if there’s any removal of that word.”

Federal Reserve chairman Ben Bernanke’s speech in the U.S. today is expected to offer some clues on the Fed’s outlook, and is the first of several this week from central bank officials.

At the Asia Pacific Economic Cooperation group summit in Singapore, New Zealand Prime Minister John Key reaffirmed his view that the Reserve Bank of New Zealand will keep interest rates at their current level until the second half of 2010.

Ben Potter, research analyst at IG Markets in Melbourne, said the statement reinforced the view that New Zealand’s monetary policy will trail Australia’s for some time.

Still, this difference has been priced in by the markets, and won’t impact on the cross-rate between the trans-Tasman currencies, according to BNZ’s Jones.

“The relative differences between the economies have priced in,” he said. “After last week’s announcement by Fonterra, we are seeing the New Zealand economy continue to recover.”

The kiwi rose to 79.46 Australian cents from 79.19 cents on Friday in New York, and was little changed at 66.36 yen from 66.28 yen. Five of eight economists surveyed expect the kiwi dollar will trade in a range this week on a trade-weighted basis, with three predicting it will increase.

The kiwi climbed to 66.07 on the trade-weighted index, or TWI, a measure of the currency against the yen, euro, pound, greenback and Australian dollar, from 65.65 on Friday in New York. It rose to 49.60 euro cents from 49.38 cents on Friday, and increased to 44.40 pence from 44.10 pence.

Businesswire.co.nz

Comments from our readers

No comments yet