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NZ Dollar Outlook: Kiwi may decline this week on China concerns, Fed rate hike bets

Monday 11th January 2016

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The New Zealand dollar may decline this week, continuing the trend set at the start of the year amid a strengthening US dollar and concern about China.

The kiwi may trade between 64 US cents and 67 cents this week, according to a BusinessDesk survey of eight currency analysts. Six expect the local currency to fall, one says it may rise and one forecasts it will remain little changed. It recently traded at 65.20 US cents.

The New Zealand dollar has shed 4.7 percent so far this year amid turmoil in the Chinese share market as weaker economic data weighs on the outlook. That trend is likely to continue this week, and traders will also be eyeing speeches by US Federal Reserve officials for a gauge on the timing of the next interest rate hike.

"The kiwi looks pretty weak," said Westpac New Zealand senior market strategist Imre Speizer. "Since the beginning of this year it's had a big reversal."

Speizer expects the kiwi to remain under pressure amid weak commodity prices, risk aversion from the Chinese stock market fall, and as the US dollar strengthens on Fed rate hikes, betting it could fall to 62 US cents over the next three months.

Fresh clues on the Fed’s view might come from a slew of officials scheduled to speak in the coming days including Atlanta Fed president Dennis Lockhart and Dallas Fed president Rob Kaplan today; Richmond Fed president Jeffrey Lacker on Tuesday; Boston Fed president Eric Rosengren and Chicago Fed president Charles Evans on Wednesday; St Louis Fed president James Bullard on Thursday; and New York Fed president William Dudley on Friday.

The Fed also releases its Beige Book, providing an update of economic conditions across its districts, on Wednesday.

The latest US economic data will arrive in the form of the NFIB small business optimism index, due Tuesday; Atlanta Fed business inflation expectations, due Wednesday; weekly jobless claims, import and export prices, due Thursday; and the producer price index, retail sales, Empire State manufacturing survey, industrial production, consumer sentiment, as well as business inventories, due Friday.

In New Zealand this week, reports covering the December month scheduled for release include ANZ commodity prices tomorrow, Quotable Value housing data on Wednesday, electronic card spending on Thursday and food prices on Friday. 

In Australia, employment data for December is due for publication on Thursday, while housing market finance data for November is due on Friday.

Bank of England policymakers aren't expected to make any changes when they meet on Thursday. Meanwhile on the same day, the European Central Bank will publish minutes from its December meeting, when it lowered the deposit rate and extended its bond-buying programme, but failed to boost its asset purchases.

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