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NZ Dollar Outlook Volatility expected ahead of US jobs report as central banks meet

Monday 2nd September 2013

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The New Zealand dollar may be volatile ahead of a key US jobs report at the end of the week, preceded by a slew of Federal Reserve speeches and major central bank meetings to decide future policy.

The local currency may trade between 76 US cents and 80.50 cents this week, according to a BusinessDesk survey of 10 traders and strategists. Five expect the currency to advance, three expect it to decline and two say it will likely remain unchanged. The kiwi recently traded at 77.65 US cents from 77.60 US cents at 8am in Wellington in quiet trading as US markets are closed for a Labor Day holiday.

Investors will be looking ahead to US non-farm payrolls on Friday, a key piece of economic data that the Federal Reserve has been using to gauge strength in the world's largest economy. A positive jobs number will likely be enough to convince the Fed that a US economic revival is underway, allowing it to taper its US$85 billion a month bond buying programme at its next meeting this month.

"This is regarded as the last hurdle ahead of a potential tapering by the Fed in September so expectations and anticipation around payrolls are even bigger than usual," said Bank of New Zealand currency strategist Mike Jones. "If we saw something around what markets expect, that would lock in a September taper, but that's an outcome that is more or less already priced into the market, so it's not immediately clear that that would be the US dollar supportive result that some expect it to be."

The US probably added 180,000 non-farm jobs in August, up from 162,000 in July, according to a Reuters poll. About two thirds of economists surveyed by Bloomberg expect the Fed to scale back its bond purchases at its Sept. 17-18 meeting.

Ahead of payrolls data, US reports are due on trade, manufacturing, factory orders, employment and the Beige book regional gauge of economic activity. Fed officials John Williams, Narayana Kocherlakota, Charles Evans and Esther George are scheduled to speak this week.

"It is all about payrolls this week although there are snippets of US data to keep markets busy in the lead up to Friday's payrolls," said BNZ's Jones.

Also potentially driving currency markets this week, central banks are meeting in Australia, Europe, England, Japan, Canada and Sweden.

"It's really all on this week and the only thing we can really be sure of is that there will be volatility in the kiwi and currency markets," said BNZ's Jones. "There's so much event risk this week that picking the currency movement is more or less impossible. It's a bit of a lottery essentially."

Local data in New Zealand this week is likely to be overlooked in favour of overseas news, Jones said.

Still, traders will keep an eye on the ANZ Commodity Price Index tomorrow and the latest GlobalDairyTrade auction on Wednesday which should both be supportive of the New Zealand dollar, he said.

Economic reports out of Australia this week include retail sales, current account and GDP ahead of a federal election this weekend.

While there is a chance that developments in Syria could affect the market this week, the decision by US president Barack Obama to seek Congress approval for military action means the issue is temporarily off the radar for markets, Jones said.

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