NZ Dollar Outlook: Kiwi may rise this week on upbeat dairy auction, higher yields

Monday 16th February 2015

The New Zealand dollar may gain this week on speculation lower milk production will push up prices for the nation's biggest export at the GlobalDairyTrade auction and as investors continue to favour the country's higher interest rates.

The kiwi may trade between 73.20 US cents and 77 cents this week, according to a BusinessDesk survey of 11 currency strategists and advisers. Ten say the local currency will advance while one expects it to remain broadly unchanged. It recently traded at 74.81 US cents, rising from 74.44 cents after better-than-expected retail sales data.

The Reserve Bank has said the 3.5 percent official cash rate is likely to remain on hold for some time, which is drawing investors to the higher yields offered by the local currency as other central banks cut rates of keep them near zero. Traders are eyeing Fonterra Cooperative Group's GDT auction Wednesday morning where whole milk powder prices are expected to improve, following a 19 percent jump at the last auction two weeks ago, where volumes dropped because of dry conditions across much of the country. The government last week declared a drought on the east cost of the South Island.

"The drought will definitely affect the dairy trade auction," said Tim Kelleher, ASB Bank head of institutional FX sales. "The hunt for yield is still ongoing so we are looking pretty attractive. "

Kelleher said the kiwi' may rise to a record against the Australian dollar this week.

The kiwi touched 96.31 Australian cents this morning, its highest since reaching a post-float record of 96.52 cents on Jan. 8.

"There's a very good chance it will head toward 97 cents," Kelleher said.

The Reserve Bank of Australia will tomorrow release the minutes of its last meeting, where it cut its cash rate to a record low 2.25 percent. The commentary is expected to be "reasonably downbeat", Kelleher said.

Later in the week, on Thursday morning New Zealand time, the Federal Reserve is scheduled to release the minutes of its most recent meeting, with traders searching for details signalling when US interest rates may start rising.

Also in New Zealand this week, Finance Minister Bill English is scheduled to speak to the Institute of Public Affairs in a lunchtime address on Thursday.

Data on producer prices, capital goods and farm spending is published on Thursday.

Elsewhere, investors will be eyeing talks between Greece and Eurozone finance ministers on Greek debt. Europe also has data on trade, business and consumer confidence and manufacturing activity due out this week.

BusinessDesk.co.nz

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