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Dollar outlook: Global good news to put upward pressure on kiwi

Monday 15th March 2010

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The New Zealand dollar may rise this week as continued global good economic news increases market appetite for commodity currencies such as the kiwi and Australian currency.

All seven economists and strategists surveyed in a BusinessWire survey predict that the 71 US cents level may be tested this week, especially if as expected, the major European countries announce the terms of a bailout of Greece’s economy. The range this week is seen as 69 cents to 71 cents.

The absence of much domestic market news, given that the Reserve Bank of New Zealand maintained a ‘steady as she goes’ viewpoint last week, means offshore influences will dominate.

The ANZ-Roy Morgan consumer confidence survey on Thursday is among the few local signals this week. America’s currency watchdog, the Federal Markets Open Committee reports back this week, and is expected to signal that an as-yet subdued economic recovery doesn’t yet require interest rate rises as a cooling mechanism.

“The markets will be checking the FOMC language to see if any of the full-stops or commas have been moved,” said Rankin Treasury Advisors manager Derek Rankin.

He said that if the Reserve Bank of Australia provides any signals in the near future that it will raise interest rates, he expects the New Zealand/Australia dollar cross rate to ease lower from its current 76.60 figure to about 75 cents.

Weekend news out of China that its Premier doesn’t see the need for the artificially kept-low Yuan to be allowed to appreciate will maintain upward pressure on both the Australian dollar and New Zealand’s. An appreciation of the Yuan would increase the domestic Chinese cost of commodities bought from ‘the lucky country’ and signal downward pressure on the Aussie.

Westpac senior markets strategist Imre Speizer feels it will be difficult for the Kiwi to break through 71 cents.

“Usually there’s a lot of sellers who step in at that level, so its hard to break,” he said. If it does, it is unlikely to run away and any positive bias will be towards small incremental lifts he said.

Peter Cavanagh of Bancorp said that market’s decided that “the world’s now less dangerous,” and that the dollar will stick within a very narrow range. “It’s anchored around the 70 cents area,” he said.

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