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NZ Dollar Outlook: Greece remains market pre-occupation

Monday 7th November 2011

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The New Zealand dollar may drift lower this week as investors weigh the strength of the Chinese economy against the ongoing turmoil of the European financial system.

The kiwi, which recently traded at 79.73 US cents, may trade between 77.80 cents and 80.72 cents, according to a poll of five analysts by BusinessDesk.

"I think we will see a sideways week," said Tim Kelleher, head of institutional sales at ASB.

Stuart Ive at HiFX said the Reserve Bank of New Zealand's financial stability report on Thursday will be interesting but it is unlikely to be a market mover.

The local diary for economic data is light this week with accommodation data for September on Thursday, electronic card transactions on Wednesday and the food price index on Friday.

That means investors will be focused on confidence surveys in Australia on Tuesday and Australian employment data on Friday and a rash of Chinese data on Wednesday.

If China's Consumer Price Index is elevated there will be speculation that China will have to move to slow its economy down more.

"It is going to be a bit of a lottery this week in the currency market. It depends on how the Greek political situation unfolds," said Khoon Goh, ANZ's head of market economics.

HiFX's Ive also said all eyes will still be on Greece again.

The kiwi rose this morning after Greece's two main parties reached agreement on forming a new government. Officials said Greek Prime Minister George Papandreou will resign but it is unclear who will lead the government and what its approach to Greece's bailout plan will be.

Robert Rennie, Westpac Banking's chief currency strategist in Sydney, said Greece in particular and Europe in general will again be the focus of traders.

The Bank of England’s monetary policy committee releases its November policy decision on Thursday British time. The previous month it caught investors out with an increased quantitative easing via additional asset purchases but it is not expected any further action this week.

A Group of 20 Nations’ leaders meeting in Cannes on the weekend made reassuring noises, though investors remain cautious about whether the latest financial bailout plan for Europe will hold together.

The leaders agreed to accelerate a move towards market-driven exchange rates and mentioned China for the first time in this context.

Westpac’s Imre Speizer said last week that the kiwi dollar is near a turning point, and once it peaks somewhere between 79.75 cents and 80.75 cents, it will fall to 71 cents by Christmas.

That's a view that is not shared by everyone.

BNZ is betting the situation in Europe will improve and the kiwi will be 83.00 cents by year-end.

But HiFX extends the graph for the last three months out and calls the kiwi lower to 73.00 US cents by year-end. ANZ sees it at 77.00 cents.

The range against the Australian dollar this week is expected to be 75.80 Australian cents to 77.30 cents.

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