NZ Dollar Outlook: Kiwi's fate this week at the mercy of US interest rate views

Monday 24th August 2015

The New Zealand dollar's fortunes will probably be determined by changing views of US interest rates this week after softer than expected sentiment in the minutes of the US Federal Reserve's last meeting prompted some investors to push out their expected timing for a rate hike.

The local currency may trade between 64.50 US cents and 68 cents this week, according to a BusinessDesk survey of 10 currency analysts. Three expect the kiwi to gain, three say it may fall and four say it will likely remain largely unchanged. It recently traded at 66.22 US cents.

The dollar index, which measures the greenback against a basket of currencies, touched its lowest in almost two months after last week's release of the minutes to the Fed's July meeting stoked speculation officials may refrain from raising interest rates in September. Investors, concerned that weak equity markets and slowing growth in China may weigh on the Fed's path to normalising monetary conditions, could gain some confidence from Fed officials speaking this week and from an expected upward revision to US second quarter gross domestic product.

Atlanta Fed president Dennis Lockhart is scheduled to speak in the US today, while New York Fed president William Dudley speaks on Wednesday and Fed vice chairman Stanley Fisher will speak this Saturday at Jackson Hole, Wyoming, during the Fed's annual conference of global central bankers, finance ministers, academics and financial market participants. While Fed chair Janet Yellen won’t attend this year, investors and traders will eye comments from other key members of the Fed for fresh clues about the rate outlook. US second-quarter GDP, due Thursday, is expected to be revised higher to an annualised 3.2 percent from a previous reading of 2.3 percent.

"I suspect towards the back end of the week we are going to start getting a bit more dollar strength," said Chris Weston, chief market strategist at IG Markets in Australia. The Fed speakers may give "a refreshing view" about how the US is tracking and GDP "could provide us some inspiration that things aren't so bad", he said.

To bolster the Chinese economy, the People's Bank of China is preparing to flood the banking system with liquidity to boost lending, the Wall Street Journal reported, citing officials and advisers to the central bank it didn't identify. China is New Zealand's largest trading partner.

Moves to strengthen the Chinese economy could provide some support to the kiwi currency, Weston said. However, he is betting the kiwi will end the week lower as traders gain more confidence about the US outlook.

In New Zealand this week, Reserve Bank deputy governor Grant Spencer is giving a speech today about the property market, the Reserve Bank publishes its survey of inflation expectations tomorrow, and July trade data is released Wednesday.

In Australia, Reserve Bank governor Glenn Stevens speaks on Wednesday, while data on capital spending plans is published Thursday.

Elsewhere, the German IFO business sentiment survey is published tomorrow, the UK has an updated estimate of second-quarter GDP on Friday, and Europe has consumer and business confidence on Friday.

BusinessDesk.co.nz

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