NZ Dollar Outlook: Kiwi may decline as US jobs data seen boosting case for rate hike

Monday 31st August 2015

The New Zealand dollar may decline this week on the expectation stronger US jobs data will increase the chance of a Federal Reserve interest rate hike next month.

The kiwi may trade between 62.50 US cents and 67.50 cents this week, according to a BusinessDesk survey of 10 currency advisers. Six expect the kiwi to decline, two say it may gain and two bet it will remain largely unchanged. It recently traded at 64.62 US cents.

This week, investors will be focused on the release of US payrolls data in Washington on Friday, which is expected to show the US economy added more than 200,000 workers in August. The report is the last piece of major US data scheduled for release ahead of the Federal Open Market Committee’s two-day meeting next month. Investors see a 38 percent chance the Fed will move in September and a 49 percent probability of a rate rise at the October meeting, according to Bloomberg on Friday.

"As long as the payrolls on Friday are decent it's going to mean that September is a decent chance, so the market on that basis will pre-empt and look at that payroll and push the dollar up, not just because the labour market is doing well but because there is now a stronger chance of a September hike," said Westpac Banking Corp New Zealand senior market strategist Imre Speizer. "Strong payrolls on Friday will push up the US dollar and conversely down for the kiwi."

Westpac forecasts US employers added about 230,000 jobs in August, following gains of 215,000 in July, 231,000 in June, and 260,000 in May.

Also on the radar this week is the fortnightly GlobalDairyTrade auction, a closely watched indicator for dairy products, New Zealand's largest commodity export.

NZX whole milk powder futures suggest prices may gain between 5 to 10 percent at Tuesday's overnight auction, according to OMF financial markets director Nigel Brunel.

While that may prompt a short-term bounce in the kiwi, the move will need to be sustained over a series of auctions before traders price an upward trend into the currency, said Westpac's Speizer.

Chinese manufacturing and non-manufacturing purchasing managers' index data scheduled for release tomorrow will also be closely watched amid concerns about the extent of a slowdown in Asia's largest economy. Signs of further weakness in New Zealand's largest trading partner could weigh on the kiwi, Speizer said.

Other items on the agenda in New Zealand this week include ANZ business confidence today, the Quotable Value house price index and the terms of trade tomorrow, and Auckland housing data from real estate agency Barfoot & Thompson later in the week.

In Australia this week, the Reserve Bank is expected to keep its benchmark interest rate unchanged at 2 percent following its meeting tomorrow. The country also has data on company profits, inventories, private sector credit, dwelling approvals, exports, the current account, retail trade, tourism and second-quarter gross domestic product scheduled for release.

Elsewhere, the European Central Bank is expected to keep its policy unchanged following its meeting Thursday. Europe also has inflation and labour data this week.

BusinessDesk.co.nz

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