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NZ Dollar Outlook: Investors wait for Reserve Bank's Thursday pronouncement

Monday 8th March 2010

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The New Zealand dollar will probably continue to trade between 68.5 US cents and 70 cents as the market waits on the Reserve Bank of New Zealand’s Thursday assessment on the state of the Kiwi economy and whether it feels cash rates will need to rise in June.

Five of the seven economists and strategists in a BusinessWire survey predict resistance at the 70 US cents level, with 68.5 cents remaining the bottom of the range. The other two feel the dollar may break through the talismanic 70 cents figure, but 71 cents is as far as it may go.

Domestic data will have a stronger influence on the currency this week, following last week’s positive news around stronger than expected U.S. employment figures and Greece’s announcement it will address its internal monetary problems and hopefully not require an international bailout of its economy.

Any globally positive news tends to favour a strengthening of the $NZ as investors become slightly more accepting of risk and are more prepared to buy what are considered commodity currencies such as New Zealand’s or Australia’s.

Last week’s international good news nudged currencies higher on both sides of the Tasman, though Australia’s perceived stronger economy had a cross rate $NZ dollar fall. Data and reaction on the domestic front will be more important than international sentiment this week according to all the pundits.

The New Zealand dollar “will be quiet this week until we hear what the Reserve Bank of New Zealand has to say,” said Derek Rankin, director of Rankin Treasury Advisers. “The market’s expecting a repeat of what it has been saying in its commentary earlier this year. The risk is they might say something that is unexpected.”

Other New Zealand data to be reported this week includes retail spending, building consents, manufacturing output and real estate figures. However, it is the CPI and GDP figures, along with any Reserve Bank announcements that has most domestic-oriented influence on the $NZ.

The Reserve Bank is issuing a full monetary policy statement, and as the market reads between its lines there is a small possibility that any bullish tone from the central bank will push the dollar over 70 cents.

“It’s very subtle language the market looks for,” said Westpac senior strategist Imre Speizer. “We’re looking for re-affirmation that it will still be firming the cash rate, as indicated, from mid-year.”

ANZ National senior markets economist Khoon Goh said though there’s a degree of nervousness over what the Reserve Bank of New Zealand might say, and whether the economic tightening cycle could be delayed, the $NZ will struggle to break 70 cents. One factor that could have a downward effect on the kiwi is Australia’s employment figures, also due out later this week. Good news could lift the Australian dollar, and lower New Zealand’s on the cross rate.

Eventually though, given the continuing strength of the Australian dollar, and the historic links it has with the Kiwi dollar, the $NZ dollar will rise on the back of a rise across the Tasman.

Businesswire.co.nz

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