NZ Dollar Outlook: Kiwi may decline on greenback strength as RBNZ remains on hold

Monday 9th March 2015

The New Zealand dollar may decline this week as the greenback strengthens on optimism the US economy is gearing up for interest rate rises. New Zealand interest rates are likely to remain unchanged at the central bank's six weekly review.

The kiwi may trade between 72 US cents and 75.50 cents this week, according to a BusinessDesk survey of eight currency strategists, traders and analysts. Six expect the local currency to decline while one picks it to increase and one says it will probably remain unchanged. It recently traded at 73.66 US cents.

The US dollar has rallied to its highest in more than 11 years after better than expected US jobs data on Friday, which stoked speculation US interest rates may increase in June. The kiwi's weakness will be welcomed by Reserve Bank governor Graeme Wheeler who reviews local interest rates this Thursday, and who has repeatedly said the local currency is unjustifiably high.

"US dollar strength coming from Friday's non-farm payroll and unemployment data is primarily the focus," said Stuart Ive, senior dealer, foreign exchange, at OMF. "The US dollar shot higher across the board and the kiwi certainly has come under pressure."

Wheeler this week will probably reiterate that the kiwi is overvalued and he would like to see it lower, and he is likely to keep the benchmark interest rate unchanged at 3.5 percent, said OMF's Ive.

"I think he will try and talk the currency down, I don't think he's going to signal too much change to anything else," Ive said. "Obviously from his perspective, the sooner the US raises rates the better because it will take some pressure off the kiwi."

Other reports due in New Zealand this week include February data for electronic card spending, house sales, food prices and manufacturing PMI.

Elsewhere, Australia has February employment and business confidence, and March consumer confidence.

In the US, the focus will be on February retail sales data, given consumer spending accounts for more than two-thirds of the American economy.

Traders will also be eyeing speeches by Cleveland Fed President Loretta Mester and Dallas Fed President Richard Fisher today ahead of the Fed's meeting next week.

Meanwhile, traders will be watching whether the European Central Bank’s new quantitative easing programme, which starts this week, will lure any overseas money into the higher yielding kiwi.

BusinessDesk.co.nz

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