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NZ Dollar Outlook: Kiwi may rise on Greek hopes, China growth

Monday 20th February 2012

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The New Zealand dollar may rise on optimism a meeting between European finance ministers will lead a second bailout package for Greece and after China took steps to underpin growth in its economy.

The New Zealand dollar recently traded at 83.86 US cents in Wellington, little-changed from 83.84 cents just after 8am this morning. That is right in the middle of the currency’s largely unchanged range for the week of 82.50 cents to 85 cents, according to a BusinessDesk survey of five analysts. Four out five analysts predict the New Zealand dollar will finish the week higher.

European finance leaders are preparing to meet in Brussels on Monday in what is widely expected to be the approval of a second bailout package for Greece. In the past week Greek political leaders have made written commitments to implement austerity measures and dug deep to find savings in a bid to secure the funds necessary to avoid default.

EU ministers have slated the meeting as a make-or-break effort to solve the nation’s fiscal crisis after leaders postponed their Feb. 15 meeting on claims Greece wasn’t doing enough to combat the crisis.

“If it all goes according to plan it will be a positive week,” said Peter Cavanaugh, senior client adviser at Bancorp. “The kiwi is on a risk-off escalator and if the world decides we have the risk thing wrong the escalator will turn into an elevator.”

In China, New Zealand’s second-biggest market after Australia, the central bank made further cuts to banks’ reserve requirements in an attempt to fuel lending and sustain economic growth. The proportion of cash lenders must set aside will fall half a percentage point from Feb. 24. This surprise easing should continue to underpin investors’ risk appetite for kiwi this week.

“It was the main driver for the New Zealand dollar this morning – it has been seen as a positive for risk assets, causing the kiwi dollar’s surge,” said Dan Bell, currency strategist at HiFX.

In the US, financial markets are closed on Monday for the Presidents Day holiday. On the data front, existing American home sales are set for release on Wednesday, with economists polled by Reuters looking for the recent signs of improvement to continue. Expectations are for a 1 percent gain, marking the second straight monthly increase.

Jobless claims and the final February reading of the Thomson Reuters University of Michigan consumer sentiment index are due out on Friday.

In Australia, the Reserve Bank will release the minutes from its Feb. 7 meeting on Tuesday, after it unexpectedly kept its benchmark interest rate on hold at 4.25 percent.

In New Zealand, the government accounts for the first six months of the year, released today, showed the first-half operating deficit was in line with expectations, though the Treasury warned the corporate tax take may tapper off through the second half of next year.

The operating balance before gains and losses (OBEGAL) was a deficit of $4.09 billion in the six months ended Dec. 31, just $3 million wider than the pre-election fiscal and economic updated forecast.

The Producers Price Index was also released, showing input prices grew 0.5 percent in the fourth quarter while outputs rose 0.1 percent, showing little inflation pressures coming from the productive sector.

The Performance of Services Index showed growth in the services sector accelerated in January, on positive employment signals and an improvement in retail trades.

The BNZ-BusinessNZ Performance of Services Index rose 2.7 points to 53.6 in January, the third highest recorded value for the month. Four of the five major sub indexes expanded.

The Reserve Bank survey of household inflation expectations for the March quarter will be released tomorrow, followed by RBNZ credit card statistics, balances of outstanding, limits and interest rates for January on Wednesday.

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