NZ Dollar Outlook: Kiwi may decline this week as Fed, GDP loom

Monday 16th March 2015

The New Zealand dollar, which has declined 2.5 percent so far this month, may slip further this week with the Federal Reserve expected to signal interest rate rises are not far off.

The kiwi may trade between 71.30 US cents and 75.20 cents, according to a BusinessDesk survey of 11 currency traders and strategists. Six expect the currency to decline, while two say it may rise and three bet it will remain broadly unchanged. It recently traded at 73.25 US cents.

This week, all eyes will be on how the US Federal Reserve tweaks its monetary policy position, and what that means for the timing of an interest rate increase. The US dollar is at its highest level in 12 years amid speculation the Federal Reserve Open Market Committee will drop the word "patient" from its policy statement released at the end of the March 17-18 meeting, suggesting the Fed is close to lifting its benchmark interest rate which has been near zero since 2008.

"What's going to set the trend this week will be the US FOMC meeting. That will clearly dictate the direction for the US dollar and by definition what happens to other currencies," said Kymberly Martin, senior market strategist at Bank of New Zealand. "The market is quite well positioned for the Fed to remove the word 'patient' from their statement. That then means that every meeting thereafter is pretty much live for a first rate hike."

BNZ expects the Fed to start raising rates from June.

Should the Fed fail to remove the word 'patient' or give any strong hints about a move to rate hikes, the US dollar could pull back from its recent strong run, causing other currencies such as the New Zealand dollar to rise, Martin said.

The decision is scheduled for release at 7am Thursday New Zealand time. Fed chair Janet Yellen will host a press conference following the statement. The Fed this week also will release forecasts for economic growth, inflation and interest rates.

In New Zealand this week, prices may weaken at Fonterra Cooperative Group's fortnightly GlobalDairyTrade auction as volumes increase and the risk of a drought lessens following recent rain, Martin said.

Fourth quarter GDP data due out on Thursday will also be closely watched as economists fine tune their forecasts for future growth. The report is expected to show New Zealand's economy expanded at a 0.7 percent pace in the fourth quarter compared with the third quarter, resulting in an annual average growth rate of 3.2 percent, according to a Reuters poll.

The currency is unlikely to react to GDP unless the report is notably different than expectations, said the BNZ's Martin.

New Zealand also has fourth quarter current account data due out on Wednesday, as well as migration data and the ANZ Roy Morgan consumer confidence report on Friday.

Finance Minister Bill English is scheduled to speak at the ANZ KangaNews Capital Markets Forum in Wellington on Thursday.

In Australia this week, the minutes to the last Reserve Bank of Australia meeting are released tomorrow, and assistant governor (financial markets) Guy Debelle and governor Glenn Stevens are scheduled to give speeches during the week.

Elsewhere, the Bank of Japan meets Tuesday and the Bank of England's minutes to its last meeting are published Wednesday, along with the UK budget and employment data.

BusinessDesk.co.nz

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