Dollar outlook: Kiwi may gain amid more upbeat global data

Monday 29th June 2009

The New Zealand dollar may gain this week on speculation economic data from the US, Europe, Australia and at home will add to signs that the global slump is abating, stoking investors’ appetite for riskier investments.

Four of seven economists and strategists in a BusinessWire survey predict the dollar will rise this week, with data out of the US showing an improved outlook for the world economy.

Three economists forecast the currency will continue in its current range. Demand for higher yields may return this week as projections for the slew of data out of America bolster optimism the global economic slump is showing signs of improvement.

A weaker US dollar is tipped to lend support to the kiwi, and the greenback slid after the People’s Bank of China reiterated its call for the International Monetary Fund’s unit of account as a suitable replacement for the world’s reserve currency.

Investors are “starting to look for ‘normal’ recessionary numbers” with US non-farm payrolls likely to show an improved 250,000 job losses later this week, said Khoon Goh, senior markets economist at ANZ National Bank. That would be down from 600,000-plus jobs shed in the previous month. With the US dollar starting the week “on the backfoot, it’s hard for the kiwi to head lower.”

The Chicago Board Options Exchange’s Volatility Index, a measure of volatility on the Standard & Poor’s 500 Index, slipped 4.9% on Friday to 25.93.

US non-farm payrolls will be out Thursday night in the US, with Independence Day celebrations bringing the data release forward a day. That will give the domestic market time to react without the typical lag after the weekend, said Imre Speizer, currency strategist at Westpac Banking Corp.

“Friday should be volatile” without the usual two-day interval that allows traders to settle down, he said.

Other American data releases expected to show a pick-up in the world’s largest economy are the Chicago Federal Reserve’s National Activity Index for May out Monday in the US, June consumer confidence on Tuesday, and the ISM Manufacturing Index on Wednesday.

Still, clouds are likely to hang over the US dollar as the world’s largest economy is tipped to record an annual fiscal deficit of US$1.85 trillion, or 13% of gross domestic product.

New Zealand’s smaller-than-expected trade balance in May boosted the kiwi to 64.64 US cents today before it settled back to 64.57 cents, from 60.51 cents immediately before the data release. It traded 64.52 cents on Friday in New York.

The release of the National Bank Business Outlook tomorrow could add some support to the kiwi if the swing to a more optimistic outlook continues, economists said. Robin Clements, economist at USB New Zealand, said the survey should show “some improvement with better rather than worse results.”

The Bank of Japan’s Tankan survey of business sentiment on Wednesday is expected to show a lift in confidence from a record low in the previous quarter, according to a Reuters survey.

Some $4.6 billion worth of uridashi and eurokiwi bonds mature in July. On Friday, Toyota Finance Australia announced a $400 million sale of two-year New Zealand dollar-denominated bonds. The bonds, which have a coupon of 3.9%, will be sold on July 16 and amount to slightly less than half the $879 million of kiwi dollar debt the company has maturing next month.

“Eurokiwi and uridashi redemptions will have a significant month,” said Clements. The value “has the potential to put downside pressure on the kiwi.”

The New Zealand dollar fell to 61.58 from 61.80 yen on Friday in New York, and advanced to 45.99 euro cents from 45.84 cents.

Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia, predicts the currency will continue to trade between 62.50 US cents and 65.50 US cents while traders keep their short positions on the kiwi. Until they change their outlook, he doesn’t see the status quo being broken.

The currency will remain range-bound on a trade-weighted basis according to four of seven strategists and economists surveyed by BusinessWire. Four said the trade-weighted index, or TWI, which measures the kiwi dollar against the currencies of major trading partners, would hold around its current level. Two said it faced risks to the upside, while one predicted it would go lower.

The New Zealand dollar gained to 60.91 on the TWI from 60.83 on Friday in New York, and rose to 80.20 Australian cents from 80.06 cents.

On the data radar this week is the European Central Bank’s review of interest rates on Wednesday in Europe, with the ECB expected to keep rates unchanged, and Australian housing, retail and trade figures out tomorrow, Wednesday and Thursday.

Domestically, the ANZ National Bank commodity price index should give an indication as to where the price of raw materials is heading on Wednesday, while the latest online auction for milk solids on Fonterra’s globaDairyTrade website will show whether the US Agriculture Department’s subsidy of US dairy farmers has seen a fall in prices yet.

Businesswire.co.nz

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