NZ Dollar Outlook: Kiwi well-supported ahead of US employment data

Monday 29th March 2010

The New Zealand dollar should find strong support at 70 US cents this week as investors wait on US employment data which is expected to show the world’s largest economy added jobs last month.

Five of eight economists and strategists in a BusinessWire survey predict the kiwi dollar will trade in a range this week with dips below 70 US cents limited ahead of US non-farm payrolls data out on Friday in New York.

On the US employment front, a Bloomberg survey suggests the world's largest economy probably added 190,000 new jobs this month, after a 36,000 decline in February.

The data, due to come out on Good Friday when equity markets will be closed, will probably have a delayed reaction as investors return to their desks next week.

The greenback softened after European leaders agreed on a package to bail-out debt-stricken Greece, with the Dollar Index, a measure of the U.S. dollar against a basket of six currencies, down 0.4% to 91.46.

“The kiwi’s looking at a pretty quiet week” until the non-farm payrolls data, said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia. “It might be given some support by a weaker US dollar, but that’s probably going to be of little value, with profit-taking on the crosses.”

The kiwi dropped to 70.40 US cents from 70.62 cents on Friday in New York, and Kelleher predicts the currency will trade between 69.80 cents and 71.25 cents this week.

It sank to 52.31 euro cents from 52.74 cents last week after European Union leaders agreed on a bail-out package for Greece.

The package will tap the International Monetary Fund for one-third of an estimated 20 billion euros of bilateral loans to be made available to the Mediterranean nation.

Rankin Treasury Advisory director Derek Rankin said the offer is a “Clayton’s package” which “the Greeks don’t want to take and the Germans don’t want to offer.”

Though he doubts it will actually improve Greece’s fiscal outlook, he predicts it will take the scrutiny away from the nation and said investors will pay more attention to the likes of the UK as it nears its general election later this year.

The kiwi dropped to 47.15 pence from 47.57 pence on Friday in New York. Rankin predicts the kiwi will trade in a range of between 69.80 U.S. cents and 71.30/71.40 cents this week with a slight bias to the upside.

The only major piece of local data out this week is the National Bank Business Outlook, on Wednesday, which most commentators expect will continue to show firms are reasonably optimistic about the outlook for the economy.

Deutsche Bank chief economist Darren Gibbs said the confidence survey will probably stay broadly in line with the previous month’s finding, and won’t have too much bearing on the kiwi.

“We’re plodding along predicting so-so data and have got a recovery that’s not much better – it’s not providing much direction for the markets and it’s very much driven by offshore,” he said.

He predicts the kiwi will stay in its current range of between 69.80 US cents and 71 cents.

The kiwi will probably keep to familiar ranges on a trade-weighted basis, according to five of eight strategists surveyed by BusinessWire.

Three expect the TWI, a measure of the currency against a basket of five trading partners, to gain this week.

The New Zealand dollar fell to 65.70 on the TWI from 65.99 on Friday in New York, and slumped to 65.02 yen from 65.27 yen.

Ben Potter, research analyst at IG Markets in Melbourne, said the Australian dollar had pared back gains against the kiwi over the past few weeks, but a price of about 78.13 Australian cents per NZ dollar was a “good entry point for a long (Australian dollar) position”, where an investor holds on to an asset in the expectation it will appreciate in value. The kiwi gained to 77.76 Australian cents from 77.52 cents last week.

Most other strategists expected the kiwi to gain against its trans-Tasman counterpart as investors pare back their expectations for more rate hikes by the Reserve Bank of Australia, and prepare for rising rates in New Zealand.

Markets have priced in 119 basis points worth of hikes by the RBA over the coming year, according to the Overnight Index Swap curve, compared to 180 points priced in for the RBNZ.

On the data radar this week is February’s building permits, out tomorrow. British four-quarter economic activity is also out tomorrow, while Australian retail sales for last month are out on Wednesday.

Chinese and Euro-zone manufacturing and German unemployment will also be worth keeping an eye on, as will any news on a multi-billion euro Greek bond issue that’s rumoured to be in the pipeline.

Businesswire.co.nz

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