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NZ Dollar Outlook Kiwi may gain as RBNZ rate decision highlights strengthening local economy

Monday 9th September 2013

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The New Zealand dollar may gain this week as the central bank's pending decision on interest rates draws attention to the strengthening local economy, highlighting that the next move in interest rates will be up.

The local currency may trade between 77.20 US cents and 82 cents this week, according to a BusinessDesk survey of nine traders and strategists. Four expect the currency to advance, two expect it to decline and three say it will likely remain unchanged. The kiwi recently traded at 79.65 US cents from 80.09 cents at 8am in Wellington.

Reserve Bank governor Graeme Wheeler is expected to keep the official cash rate at 2.5 percent when he releases the bank's monetary policy statement on Thursday, according to a Reuters poll. Wheeler is weighing a strengthening local economy, a softer New Zealand dollar and the likely effect of pending restrictions on low equity mortgages on an overheated housing market.

"The key is going to be what Graeme Wheeler says on Thursday," said Tim Kelleher, ASB Bank head of institutional FX sales in New Zealand. "The risks are slightly more skewed to that he is a little bit more hawkish than bearish about the economy but he is obviously concerned about the currency so how he manages that I don't know."

Excluding the effects of the nation's worst drought in 70 years, "the rest of the economy is performing quite strongly," Kelleher said.

New Zealand's benchmark interest rate hasn't budged since March 2011 when it was cut in response to the Christchurch earthquakes, although economists are picking a hike to 2.75 percent next March, rising to 3.25 percent by September next year.

Ahead of the Reserve Bank statement, data on electronic card spending for August will be published tomorrow, which ASB expects will show spending slowed to a 0.3 percent pace from 0.4 percent in July as petrol prices fell.

Meanwhile, rising house prices and a gradually improving labour market should help bolster the ANZ-Roy Morgan Consumer Confidence survey to be published on Friday, ASB said.

On Wednesday, a similar report in Australia, the Westpac/Melbourne Institute Consumer Confidence Index is expected to show consumer confidence is slowly trending upwards but sentiment remains fragile as people are fearful of job losses in a slowing economy, ASB says.

Australian employment data on Thursday will likely show employment growth remains soft, keeping the unemployment rate unchanged at 5.7 percent, ASB said. Employment growth will probably slow further in the future, lifting the unemployment rate, the bank said.

In the US, retail sales probably rebounded 0.4 percent in August from a small 0.2 percent gain in July, helped by solid employment growth and more relaxed bank lending standards, ASB said.

In China, reports tomorrow will probably show annual growth in retail sales eased in August on lower consumer confidence and softness domestic demand weighed on industrial production, ASB said.

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