NZ Dollar Outlook: Analysts split on Kiwi outlook amid market turmoil

Monday 25th January 2016

Views are split on the direction of the New Zealand dollar heading in to the Reserve Bank's review of interest rates on Thursday amid global market uncertainty.

The kiwi may trade between 63.50 US cents and 66.80 cents this week, according to nine currency advisers surveyed by BusinessDesk. Four expect a gain, four predict a decline and one is betting it will be little changed. It recently traded at 64.67 US cents.

All eyes are on central banks this week, with meetings scheduled for the Federal Reserve, the Bank of Japan and the Reserve Bank of New Zealand. Investors are betting additional stimulus this year in response to global market volatility following a slump in oil prices, weak inflation, falling commodity prices and forecasts for lower economic growth.

"Following the market shenanigans in the brief period since this year has started, markets are surprisingly not nervous," said Peter Cavanaugh, client adviser at Bancorp Treasury Services. "Fresh in the local market's mind is the fact that the Reserve Bank cut the cash rate in December and whilst no one is expecting them to do so this week, the worry is what sort of language that is going to come out.

"Staunchness, provided it's credible, will give the New Zealand dollar some support but any hints that the Reserve Bank are wavering towards another OCR cut could see the New Zealand dollar weaken very quickly," said Cavanaugh. "In this heightened uncertainty, central banks' role has become more pronounced."

The Reserve Bank will release a one-page statement on its Official Cash Rate at 9am on Thursday, following the Federal Reserve statement at 8am New Zealand time. Neither bank is expected to change its monetary policy settings although the outlook comments will be closely eyed.

The Bank of Japan reviews its policy on Friday, with ASB saying the decision will be "finely balanced".

Other releases scheduled for New Zealand this week include the government's latest financial statements and December data for the service sector on Tuesday, merchandise trade on Thursday, and building consents and credit growth on Friday.

Australian markets will be closed tomorrow for the Australia Day public holiday. This week Australia releases fourth-quarter inflation data, import and export prices, and private sector credit.

In the US, data is due this week on manufacturing, housing, consumer confidence, employment and fourth-quarter growth.

Meanwhile, in Europe, reports are scheduled for release on business sentiment, consumer confidence, and inflation.

BusinessDesk.co.nz

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