NZ Dollar Outlook: Kiwi subdued ahead of RBA meeting

Tuesday 6th April 2010

Australian monetary policy looks likely to be the biggest influence on the New Zealand dollar early this week, with higher interest rates across the Tasman continuing to sap global appetite for the Kiwi relative to its trans-Tasman counterpart.

Three of seven economists and strategists in a BusinessWire survey predict the kiwi will stay in its current range of between 69.50 US cents and 71 cents after bullish data out of the US stoked investors’ appetite for higher yields on the prospect that the world’s largest economy is recovering at a faster pace than expected.

Two picked the kiwi dollar will decline this week, while the last two forecast a gain. Stronger than expected manufacturing data in the US backed up Friday’s improvement in labour data, and prompted analysts to bring forward their expectations for when the Federal Reserve will begin hiking interest rates.

US 10-year Treasuries pushed near 4%, a 10-month high, narrowing the interest rate differential between New Zealand and America, and dragged the kiwi dollar down 0.5%.

The kiwi sank to 70.39 US cents from 70.63 cents on Thursday in New York.

Still, today’s RBA meeting may help the New Zealand currency find support against the greenback if Governor Glenn Stevens decides to hike rates another 25 basis points to 4.25%.

Australia’s central bank was the first G-20 nation to tighten monetary policy last year after the country avoided a recession, and Stevens has indicated he wants to return to a more normal setting sooner rather than later.

The kiwi dropped to 76.47 Australian cents from 76.82 cents last week.

“The kiwi will be generally firm, but with no direction unless there’s a new topic or new issue that arises,” said Robin Clements, economist at UBS New Zealand.

He predicts the currency will remain its recent ranges.

Business confidence improved in the first three months of this year, according to the New Zealand Institute of Economic Research’s Quarterly Survey of Business Opinion, and Westpac Banking Corp. market strategist Imre Speizer said this data has been “overlooked”.

“Seasonally adjusted, there was quite a jump in the headline figure,” Speizer said. “This comes against a backdrop of quite supportive data” and the markets seem to be ignoring the momentum in New Zealand’s economy, he said.

Speizer predicts the kiwi trade between 70 U.S. cents and 72.50 cents this week, with a bias towards the upside. Bank of New Zealand strategist Mike Jones said today’s RBA decision will probably see a rate hike by Governor Stevens, and while this would prompt a “knee-jerk reaction” to support the kiwi, a decline on the cross-rate against the Australian dollar would drag the currency down against the greenback.

He predicts the kiwi will trade between 69.60 US cents and 71.10 cents this week.

Tomorrow’s milk powder auction on Fonterra’s globalDairyTrade platform may underpin support for the currency if it shows commodity prices are still rising, though it would need to show a large jump to push the kiwi dollar higher, according to Deutsche Bank chief economist Darren Gibbs.

“Commodity prices have generally done quite well in recent weeks,” Gibbs said. Any gains need to be stronger than the 5% to 10% volatility that the platform usually shows on a month-to-month basis, he said.

Gibbs predicts the kiwi will trade between 70 US cents and 71.50 cents this week.

The kiwi will probably remain range-bound on a trade-weighted basis this week, with three strategists predicting little or no change, one giving it a negative bias, and two calling it lower.

The kiwi edged down to 65.54 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 65.65 last week, and inched up to 66.42 yen from 66.36 yen.

It was little changed at 52.21 euro cents from 52.15 cents on Thursday in New York, and declined to 46.06 pence from 46.34 pence.

Derek Rankin, director at Ranking Treasury Advisory Ltd., said the kiwi will probably extend its decline against its trans-Tasman counterpart, and his firm has a target of 75 Australian cents on the cross-rate.

“Exporters are pretty aggressive in stepping in and locking in the multi-year lows,” Rankin said. “While interest differentials remain, that cross-rate should be going down.”

On the radar this week is the ANZ Commodity Price Index out today, which will probably show ongoing strength in the price for New Zealand’s raw materials.

Offshore, the Bank of England, European Central Bank, and Bank of Japan will be reviewing monetary policy, while several Fed officials will be making speeches through the week.

Businesswire.co.nz

Comments from our readers

No comments yet