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NZ dollar heads for 2.4 percent weekly drop amid upbeat US economic data, jobs figures loom

Friday 2nd August 2013

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The New Zealand dollar is heading for a 2.4 percent weekly decline amid upbeat US economic data and jobs figures tipped to show an improving labour market, stoking bets the Federal Reserve will start unwinding its monetary stimulus.

The kiwi traded at 78.87 US cents at 5pm in Wellington from 78.74 cents at 8am and 79.65 cents yesterday. It started the week at 80.84 cents. The trade-weighted index fell to 75.16 from 75.54 yesterday, and is heading for a 1.1 percent weekly fall from 75.96.

Investors are zeroing in on US data after Fed chairman Ben Bernanke reiterated his view that any slowing of the central bank's US$85 billion monthly asset purchase programme would depend on the strength of the economic recovery. The US unemployment rate probably fell 0.1 of a percentage point to 7.5 percent last month and added 185,000 jobs in July, according to a Reuters survey.

"US data is going to be more closely scrutinised with all eyes on when the Fed will start tapering stimulus," said Alex Hill, head of dealing at HiFX in Auckland. The prospect of tapering "is weakening the kiwi at the moment, though the kiwi is still fairly strong on the crosses."

Hill said the currency was back into a range of between 77 US cents and 80 cents, with strong buying around 77.50 cents and good buying opportunities at 79.50 cents.

Investors are waiting on the Reserve Bank of Australia meeting on Tuesday next week, when policy makers are tipped to cut the target cash rate to 2.5 percent, matching New Zealand's key rate.

The kiwi is heading for a 1.5 percent gain against the Australian dollar this week as investors pile into the growing interest rate advantage on this side of the Tasman. The local currency traded at 88.58 Australian cents at 5pm in Wellington from 88.85 cents yesterday, having started the week at 87.22 cents.

HiFX's Hill said the kiwi dollar will probably head into the 90s on the Australian dollar cross with interest differentials a traditionally key driver for the currency pair.

The kiwi fell to 59.70 euro cents at 5pm in Wellington from 59.98 cents yesterday, and declined to 52.16 British pence from 52.52 pence. It increased to 78.50 yen from 78.35 yen yesterday.

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