Monday 13th January 2014
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The New Zealand dollar may gain this week as investors tune into US economic indicators after a weak reading of the labour market on Friday sparked fears the Federal Reserve may stall plans to scale back its monetary stimulus, while New Zealand's upbeat outlook is expected to be reaffirmed by local data.
The local currency may trade between 82 US cents and 84.30 cents this week, according to a BusinessDesk survey of nine traders and strategists. Eight predict the currency will gain, and one expects it to decline. The kiwi recently traded at 82.94 US cents from 82.99 cents at 8am in Wellington.
Weak jobs figures on Friday in Washington surprised investors who were looking for a faster recovery in the labour market, and prompted traders to reassess their expectations as to how quickly the Fed will pull back its monthly asset purchase programme. A slew of Fed officials are speaking this week, including outgoing chairman Ben Bernanke on Thursday in Washington, and will be watched for insight into the winding down its quantitative easing.
Freezing conditions in the US have been blamed for much of the weak employment market, and investors will be looking at the Fed's beige book, the Philadelphia Fed survey and Empire manufacturing survey see how much of an impact the harsh winter has had on the world's biggest economy.
At the same time, the New Zealand Institute of Economic Research's quarterly survey of business opinion tomorrow is expected to show another upbeat assessment of the local economy, feeding into expectations the country's recovery is gathering pace.
Sam Tuck, senior FX strategist at ANZ New Zealand in Auckland, said the kiwi will be supported by "potential for a strong QSBO and some more weather-related figures" from the US. He expects the currency will push up to the 84 US cents area, though stay within its long-term range.
US corporate earnings season will also capture traders' attention, with investors looking for revenue growth rather than cost cutting measures, and any sign of strength may ease concerns stoked by the weak jobs report.
That's one of the reasons why OMF senior adviser Stuart Ive has a negative bias for the kiwi this week, saying the employment report is one piece of data and is unlikely to hold up the Fed's plans.
"Overall the kiwi may edge higher over time, but I find it hard to believe we're going to break to the upside here," Ive said. "I don't think the numbers of Friday were enough to break out of the current range."
Traders are waiting for next week's fourth-quarter consumer price index ahead of the Reserve Bank's first policy review on Jan. 31 to firm up their views on the pace of the local tightening cycle. Markets have priced in 116 basis points of increases to the 2.5 percent official cash rate over the coming 12 months, according to the Overnight Index Swap curve.
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