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NZ Dollar Outlook: NZ dollar may rise on GDP, local data

Monday 19th March 2012

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The New Zealand dollar may finish the week at the top of its recent trading range amid speculation figures will show the local economy has continued to expand while the current account deficit shrank.

The New Zealand dollar recently traded at 82.69 US cents up from 82.19 cents at 8am this morning. That’s right in the middle of this week’s range of 80.60 cents to 85.20 cents, according to a BusinessDesk survey of six analysts.

Four of the six analysts predict the New Zealand dollar will finish the week higher. Investors are picking slow but respectable economic growth when gross domestic product for the three months ended Dec. 31 is released on Thursday.

A Reuters’ surveys of 11 economists expect GDP to have grown 0.6 percent, slowing from a pace of 0.8 percent in the September quarter. The slowdown is attributed to a drop in manufacturing, offset by strong farming output and improving retail trade and construction.

“The predictions are consistent with a steady and slow prolonged recovery,” said Peter Cavanaugh, senior client adviser at Bancorp. “If the data is okay and the world continues on its path of hope we can see the kiwi moving above 84 US cents.”

The data follows fourth-quarter balance of payments on Wednesday, which is tipped to show the current account deficit shrank to 4 percent of GDP. Reserve Bank credit card billings are also set for release on Wednesday and international visitor arrivals for February on due on Friday.

Fonterra Cooperative Group’s online auction on Tuesday in the US will also be in for greater scrutiny after the dairy exporter cut its forecast payout to farmers earlier this month.

The kiwi rose to 77.98 Australian cents from 77.65 cents at 8am ahead of Reserve Bank of Australia Governor Glenn Stevens speech in Hong Kong today. The speech titled, “Economic Conditions and Prospects” comes as the central bank prepares to release the minutes from its March meeting on Tuesday.

The RBA held the target cash rate at 4.25 percent earlier this month saying growth will be close to trend and inflation close to its target 2 percent-to-3 percent range.

It promised to cut rates “should demand conditions weaken materially.” Governor Glenn Stevens has already said underlying consumer price inflation will slow further over the next quarter or so.

“The minutes will give us more clarity around the recent on-hold decision,” said Imre Speizer, market strategist at Westpac Banking Corp. “The RBA is seeing things in a fairly positive fashion – giving the Aussie dollar a push up against the kiwi.”

China’s HSBC Flash Purchasing Managers’ Index, the unofficial reading of manufacturing activity, is due out on Thursday and is expected to show manufacturing growth in the world’s second-largest economy is slowing.

Chinese house prices recorded their worst performance in a year in February, according to government data released over the weekend. Prices fell in 45 cities last month as compared with January, while 22 cities were unchanged. New home prices in the cities of Shanghai, Beijing, Shenzhen and Guangzhou dropped for a fifth month.

“We will be looking to see if there is any fallout from the Chinese numbers,” said Michael Hollows, currency strategist at HiFX. “Speculation will be starting to build again about whether the Chinese central bank will look to cut interest rates in the future.”

The world’s largest economy, the US, is preparing for another spree of data this week with housing data, including building permits, housing starts and mortgage application rates due out. Investors will be looking for signs this part of the economy is picking up speed, bringing its pace of recovery in line with improvement elsewhere.

In the UK, Chancellor George Osborne will present the region’s budget on Wednesday. The Bank of England will release the minutes from its March policy meeting on Wednesday.

New Zealand’s data-heavy week kicked off with the release of the Westpac McDermott Miller Consumer Confidence Index today. It showed confidence rose 1.1 points to 102.4 in the first three months of the year, edging up after a fourth-quarter slump.

The Bank of New Zealand Business NZ Performance of Services Index also released today recorded its highest February reading since the survey began in 2007. The index rose 1.7 points to 55.5 in February from January. It was led by an increase in both activity/sales and new orders/business.

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