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NZ Dollar Outlook: Kiwi may rise but still vulnerable to European woes

Monday 10th October 2011

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The New Zealand dollar may rise this week on hopes European policymakers will make progress on restoring confidence, avoiding a Greek debt default and saving banks but analysts set a wide trading range to accommodate rhetoric from all sides.

Five economists and market strategists surveyed by BusinessDesk said the kiwi, which was recently at 76.91 U.S. cents, may trade in a range between 73.50 cents and 80 U.S cents this week.

"Panic selling is probably over for now. European officials seem to be gradually building something, but the shape of it is not that obvious," said Derek Rankin, director at Rankin Treasury Advisory

The week may get off to a slow start with the Columbus Holiday in the United States on Monday and a holiday in Japan.

European leaders are working weekends to resolve the crisis that is scaring the world. During the weekend credit rating downgrades of Italy and Spain by Fitch Ratings kept the focus on Europe, despite a better-than-expected non-farm payrolls report in the U.S.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said after meeting that Europe must solve its problems by the Group of 20 summit in Cannes on Nov. 3 and Nov. 4.

"We need to deliver a response that is sustainable and comprehensive," they said.

Imre Speizer, market strategist at Westpac Banking Corp., said there would be plenty of commentary from Europe this week that would overshadow other events.

Tim Kelleher, head of institutional FX sales at ASB Institutional, said there could be developments from Slovakia on Tuesday.

Leaders of Slovakia's divided coalition government are meeting to try to reach an agreement on support of the European Financial Stability Fund. Political concessions may be needed to resolve the expected showdown.

Minutes of the Federal Open Market Committee's September meeting will be released later this week, but no surprises are expected from the meeting that introduced ‘Operation Twist’, which aimed to lower private borrowing costs.

"U.S. data hasn't been horrible. Their economy is dribbling sideways. It is not plunging into recession," said Speizer.

Equity markets remain vulnerable to sentiment driven by twists and turns in the European financial crisis but those who like to look at fundaments have earnings from Alcoa Inc. on Tuesday, followed by PepsiCo, Google, JPMorgan Chase and Mattel this week.

Locally, there will be insight into spending patterns at the start of the Rugby World Cup when New Zealand electronic card transactions data is released on Tuesday. A modest recovery in spending may have occurred.

The New Zealand Government is expected to highlight its better debt position when releasing its accounts for the year to June 30, 2011 tomorrow.

The European crisis was unfolding daily, said Mike Hollows, director of trading at HiFX.

"Really it is like one of those Russian dolls. You lift it up and there is something underneath. It was hard to see a clear plan through the crisis and ratings agencies were jumping in, he said.

The kiwi is expected to trade between 77.70 Australian cents and 78.20 cents this week. It recently traded at 78.63 cents.


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