NZ Dollar Outlook: Kiwi may fall as RBNZ seen keeping rates low

Monday 5th March 2012

The New Zealand dollar may fall this week amid speculation the Reserve Bank will keep its benchmark interest rate at a record low in the face of tepid economic growth and tame inflation.

The New Zealand dollar recently traded at 82.88 US cents down from 82.92 cents at 8am. That’s right in the middle of the largely unchanged forecast range of 81 cents to 84.50 cents, according to a BusinessDesk survey of five analysts. Three out of the five analysts predict the kiwi will finish the week lower.

Reserve Bank Governor Alan Bollard is expected to hold the official cash rate at 2.5 percent when he reviews monetary policy on Thursday, though traders are starting to bet on increases, pricing in 24 basis points of increases in the coming 12 months, according to the Overnight Index Swap Curve.

“The chances are Bollard is not going to change anything – as has been the case in recent weeks the kiwi dollar is likely to go sideways unless affected by outside factors,” said Peter Cavanaugh, senior client advisor at Bancorp.

The Reserve Bank of Australia kicks off this week’s interest rate reviews tomorrow afternoon. The announcement is predicted to be a key driver of the kiwi against the Australian dollar. Governor Glenn Stevens is expected to hold the target cash rate at 4.25 percent.

The New Zealand dollar was little changed at 77.31 Australian cents from 77.26 at the close of New York trading on Friday.

Thursday is a busy day for central bank meetings with the Bank of Canada, Bank of England and European Central Bank all announcing interest rate reviews.

In the US, the focus will be on non-farm payrolls and unemployment data due out on Friday. This week also brings data on the service sector, factory orders, productivity, jobless claims and both international and wholesale trade.

“On the week I think the kiwi will fall,” said Imre Speizer, market strategist at Westpac Banking Corp said. “Up until Friday night the kiwi will move higher until nonfarm payrolls and unemployment figures from the US are released,” he said.

Global markets remain nervous with investors, analysts and consumers all on edge following the recent rise in global oil prices in the face of the West’s standoff with Iran over its nuclear programme.

Oil for April delivery fell 2 percent to US$106.70 a barrel on the New York Mercantile Exchange on Friday. Prices have fallen about 3 percent in the last five days, the first weekly loss since Feb. 3, according to Bloomberg.

US president Barak Obama will meet with Israeli’s Prime Minister Benjamin Netanyahu on Monday as the two allies try to reach an agreement on how to deal with Iran’s nuclear programme.

In Europe, finance minister have delayed approving half of the 130 billion euro bailout package for Greece as they await a more detailed assessment of the implementation of austerity measures. Rating agency Moody’s Investors Service cut the indebted nations credit rating to C over the weekend, the agency’s lowest level.

New Zealand recorded its biggest loss of migrants in a 12-month period since August 2001, according to government figures today.

More than 4,700 New Zealanders left for Australia than arrived in January, taking the annual loss to a record 38,100 in the 12 month-period, according to Statistics New Zealand.

The value of building work rose a seasonally adjusted 2.9 percent to $1.7 billion in the three months ended Dec. 31, bouncing back from a decade-low in the previous quarter, according to government data also released this morning.

The GlobalDairyTrade dairy products auction will take place on Wednesday followed by wholesale trade survey for the December quarter and international visitor arrivals for January.

The economic survey of manufacturing for the December quarter is set for release on Thursday and electronic card transactions for February on Friday.

BusinessDesk.co.nz

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