NZ Dollar Outlook: Traders split on outlook for kiwi ahead of RBNZ, Fed meetings

Monday 7th December 2015

Views are split on the direction of the New Zealand dollar this week, reflecting positioning in the currency leading in to the Reserve Bank's review of interest rates on Thursday and the Federal Reserve's meeting next week.

The local currency may trade between 65 US cents and 69.25 cents this week, according to nine analysts in a BusinessDesk survey. Five expect the kiwi to gain while four bet it will decline. None are on the fence. It recently traded at 67.15 US cents.

Traders have pulled back their bets for the US dollar's advance as upbeat employment data at the end of last week cemented expectations that the Fed will likely hike interest rates following its Dec. 15-16 meeting, with attention now turning to a more gradual rate of increases next year than previously anticipated. In New Zealand, most economists expect Reserve Bank governor Graeme Wheeler to cut the benchmark interest rate this week, but traders betting on the outcome have given it only about a 50 percent probability.

"The US dollar broke lower last week, which pushed the kiwi higher," said Westpac Banking Corp New Zealand senior market strategist Imre Speizer. "The US dollar is now much weaker than where we would have expected it to be. The next few weeks are looking quite bullish, primarily on the weaker US dollar."

The greenback would normally gain leading into an expected US interest rate hike, however traders have already priced in the move, with the US dollar index having gained 9 percent so far this year. In New Zealand, the kiwi could advance even if the central bank here cuts rates should the bank signal there are no further cuts in the pipeline.

"There's two big events before year end, there's our meeting and the Fed meeting, and both of those are almost a guess as to what the currency does for each," said Westpac's Speizer. "The Fed is almost certain to hike, but the question is what will the market do to the US dollar on that?"

In Westpac's weekly note titled 'Walking a Tightrope', it says New Zealand's central bank will likely "carefully tread the fine line between keeping its options open by not removing the possibility of further rate cuts, and at the same time not explicitly signalling that further cuts are likely."

The Reserve Bank decision is scheduled for release at 9am on Thursday. Governor Wheeler will front a press conference after the decision is announced, and appear before Parliament's finance and expenditure select committee at 1pm.

Also on Thursday, the Real Estate Institute is due to release its monthly house sales data, Fonterra Cooperative Group may provide an update on its expectations for its 2015/16 forecast payout to farmers, and electronic card spending data for November is scheduled for release.

On Tuesday, third-quarter manufacturing data is due out, while on Friday the BNZ-Business performance of manufacturing index, ANZ-Roy Morgan consumer confidence survey, and November food price data are scheduled for publication.

In Australia this week, reports are due on business and consumer confidence, as well as November jobs data.

In China, data is due on November trade, inflation, producer prices, retail sales, industrial production and fixed asset investment.

Elsewhere, the Bank of England is expected to keep its policy unchanged at its meeting on Thursday.

In the US, St Louis Fed president James Bullard will speak on the economic outlook today. The US has data this week on consumer credit, small business optimism, wholesale trade, jobless claims, import and export prices, producer prices, retail sales, business inventories and consumer confidence.

In Europe, reports are due on investor confidence, third-quarter GDP, as well as German industrial production, trade and inflation.

BusinessDesk.co.nz

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