NZ Dollar Outlook: Kiwi's fate this week at the mercy of US interest rate views

Monday 20th April 2015

The New Zealand dollar's fortunes will probably be determined by changing views of US interest rates this week, after softer US economic data prompted some investors to push out their expectations of a rate hike by the US Federal Reserve.

The kiwi may trade between 74.50 US cents and 78.60 cents, according to a BusinessDesk survey of 13 currency advisers. Five expect the kiwi could gain, five bet it will fall and three say it will likely remain largely unchanged.

The dollar index, which measures the greenback against a basket of currencies, has declined the past week as softer US retail, housing and factory data pushed out expectations for when the Federal Reserve is likely to start raising interest rates. Some 71 percent of economists in a Bloomberg survey now expect the Fed to start hiking rates in September, up from 32 percent in March. Those expecting a move as early as June shrank to 12 percent from 45 percent in March.

"The US dollar being weak dominates any local weak news we might get," said Imre Speizer, senior market strategist at Westpac Banking Corp in New Zealand. "The US dollar is weakening near term and that is just going to keep supporting the kiwi/US."

Still, some say the kiwi, which hit a three month high of 77.40 US cents in weekend trading, is at the top of its range and likely to decline. Others say it is trading in a sideways pattern and could break higher towards 80 US cents should it breach 77.50 cents.

The New Zealand dollar was little changed after the release of economic data this morning showing consumer prices fell 0.3 percent in the first quarter, led by a drop in fuel. Economists in a Reuters poll had expected a 0.2 percent decline for the quarter. The kiwi fell as low as 76.78 US cents from 77.01 cents immediately before the 10:45am release of the inflation data, and was recently trading at 76.93 cents.

In a separate report this morning, the BNZ BusinessNZ Performance of Services Index for March increased 1.6 points to 57.6, compared with February. A reading above 50 indicates expansion in activity.

Meanwhile, March migration data due out on Thursday may show tourist arrivals fell, following a boost in February from Chinese New Year, Robin Clements, economist at UBS New Zealand, said in a note. Clements said he will be looking to see if migrant inflows have peaked after rising to a record in February.

ANZ Roy Morgan consumer confidence for April and data on credit card billings for March are also due for release on Thursday.

In Australia this week, the focus will be on tomorrow's release of the minutes of the Reserve Bank of Australia's April 7 meeting, when it unexpectedly kept interest rates on hold. RBA governor Glenn Stevens is scheduled to give a speech to an American Australian Association luncheon hosted by Goldman Sachs in New York tomorrow.

Traders are currently pricing in a 58 percent chance that the RBA will cut its benchmark interest rate at its next meeting on May 5, according to the Overnight Index Swap Curve.

Elsewhere this week, the Bank of England minutes to its last meeting are released on Wednesday, HSBC Chinese manufacturing data is out on Thursday and German business confidence is released on Friday.

BusinessDesk.co.nz

Comments from our readers

No comments yet