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NZ Dollar Outlook: Traders split on outlook for kiwi as commodity, inflation eyed

Monday 18th April 2016

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The New Zealand dollar may be headed for a volatile ride this week as traders weigh the outlook for commodity prices and inflation.

The kiwi may trade between 67.50 US cents and 71 cents this week, according to 11 currency analysts surveyed by BusinessDesk. Four expect a gain, four say it will likely remain broadly unchanged, while three bet it could decline. It recently traded at 68.95 US cents.

Oil prices plunged almost 7 percent in early trading today after a meeting of major oil producers at the weekend failed to agree on a deal to freeze output to bolster prices, weighing on currencies linked to commodities such as the kiwi, Australian and Canadian dollars. The kiwi regained some ground after New Zealand first quarter inflation data today showed prices rose 0.2 percent, a touch higher than the 0.1 percent forecast by economists, and prompting speculation the Reserve Bank may hold off from cutting interest rates this month.

"It is quite a line ball call for April," said Tim Kelleher, ASB head of institutional foreign exchange sales for New Zealand. The kiwi is probably going to be "washed around in a bit of risk on, risk off" trading this week, following commodity prices, he said.

Kelleher expects prices to be relatively flat at the GlobalDairyTrade auction overnight on Tuesday. That won't help the outlook for the country's dairy farmers, with prices currently below the cost of production for most.

Other data scheduled for release this week includes an update on the Reserve Bank's inflation model this afternoon, and the BNZ-BusinessNZ Performance of Services Index tomorrow. On Thursday, data is published on migration, tourism, consumer confidence and credit card spending.

Elsewhere, Australia's Reserve Bank releases the minutes of its last meeting tomorrow and RBA governor Glenn Stevens is scheduled to speak at a Credit Suisse conference in New York. On Thursday, Australian business confidence is due out.

In Europe, the ZEW business sentiment survey is published tomorrow and the European Central Bank reviews policy on Thursday. Japan releases trade data on Wednesday while the UK has employment data on Wednesday and retail sales Thursday.

In the US, investors will eye speeches by US Federal Reserve officials including New York Fed President William Dudley, Minneapolis Fed’s Neel Kashkari and Boston Fed’s Eric Rosengren. US economic releases this week cover housing, jobless claims, business confidence, and manufacturing.

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