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NZ Dollar Outlook: Kiwi to gain as Greek bail-out underpins risk appetite

Monday 12th April 2010

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The New Zealand dollar is expected to push towards a new three-month high after a firmer offer of help emerged for debt-stricken Greece from the European Union and the International Monetary Fund, underpinning investors’ appetite for higher-yielding assets.  

Six of eight economists and strategists surveyed by BusinessWire predict the kiwi will gain this week after the EU and IMF pledged as much as 60 billion euros in loans at sub-market rates to the Mediterranean nation. The other two economists surveyed expect another flat week for the kiwi, with domestic data this week likely to offset increased risk appetite.  

The euro surged 1.8% to US$1.3633 after reports of the bail-out package for Greece, and investors returned to so-called riskier assets as their appetite for higher yields increased. The kiwi dollar pushed up to an 11-week high of 71.95 U.S. cents before paring back to 71.66 cents. It traded at 71.21 cents on Friday in New York. The kiwi sank to 52.60 euro cents from 53.19 cents. 

“There’s a lot of resistance up here at the 72 US cents area, where it’s had trouble before,” said Derek Rankin, director of Rankin Treasury Advisory. “If it breaks through 72.50 US cents, exporters would have to be very concerned” and the next target may be 76 US cents.  

Mike Jones, strategist at Bank of New Zealand, said the household data will be the key domestic focus for the week, with Real Estate Institute figures on Friday likely to show flat house sales last month may limit gains in the kiwi to 72.50 US cents.  

“There should be signs of an ongoing recovery, albeit a gradual one,” Jones said. “If the kiwi closes above 70.80 US cents, it should head towards 72.50 cents this week.”  

QV Valuations figures today showed the housing market began to slow last month, as buyers lost last year’s urgency to purchase whatever they could get their hands on.  

Khoon Goh, senior markets economist at ANZ New Zealand, went against the trend, picking the currency to ease from today’s gains and drift back towards its recent range around the 71.50 US cents level as traders unwind their short positions in euro.  

Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia, said he expects the kiwi to trade between 71 US cents and 73 cents this week with gains limited by selling on the other major cross-rates.  

The kiwi will probably stay in familiar ranges on a trade-weighted basis, according to five of eight strategists in a BusinessWire survey. Two predict it will gain, while another has an upward bias. The kiwi dollar edged down to 66.12 on the trade-weighted index, or TWI, from 66.16 last week.  

Darren Gibbs, chief economist at Deutsche Bank, said the kiwi may struggle against its trans-Tasman counterpart this week, with a slew of Chinese data out on Thursday likely to underpin support for the Australian dollar. 

“We’re pretty bullish on that Chinese data, and given the nature of their relationship with Australia, it’ll be more positive for the Aussie than the kiwi,” Gibbs said, referring to the Australasian currencies colloquially.  

The kiwi edged up to 76.60 Australian cents from 76.49 cents on Friday in New York. It was unchanged at 66.71 yen, and advanced to 46.53 pence from 46.30 pence last week.  Rankin Treasury Advisory’s Rankin said that until the Reserve Bank of New Zealand indicates it will hike interest rates, the kiwi will stay in the 76 Australian cents area.  

Investors have priced in 175 basis points of hikes by the RBNZ over the coming 12 months, according to the Overnight Index Swap curve, and are betting the Australian bank will lift rates by 94 points over the same period.

That would narrow Australia’s yield advantage over New Zealand, with RBA’s target cash rate at 4.25%, while the RBNZ’s official cash rate is at 2.5%, the widest it’s ever been in Australia’s favour.  

On the data radar this week is New Zealand’s spending on electronic cards for March out tomorrow, non-resident bond holdings on Wednesday, and the Business New Zealand-BNZ PMI on Thursday.

In the US, Federal Reserve chairman Ben Bernanke will testify before Congress on Thursday, while official data for retail sales, inflation, trade, and business inventories will continue to update investors on the state of the world’s largest economy this week.  

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