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NZ Dollar Outlook: Kiwi likely to fall this week amid bout of risk aversion

Monday 1st February 2010

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The New Zealand dollar is likely to fall below 70 US cents this week, tracking a weaker Australian dollar, as ongoing fears about the state of the global recovery sap demand for currencies of commodity producers and those offering higher yields. 

All seven economists and strategists in a BusinessWire survey predict the currency will fall this week with the downtrend firmly in place as investors return to so-called safe haven currencies amid fears about the health of European economies.  

The kiwi dollar fell 1.3% last week, with investors eschewing higher yields as the prospects for the global economy recovery dimmed on fears about sovereign credit in Europe and the threat of China– the biggest buyer of raw materials such as copper - cooling its economy. Though it held above 70 US cents over the weekend, it’s expected to test support at 69.70 cents. The kiwi dropped to 70.28 cents from 70.82 cents on Friday in New York. It briefly touched 69.94 cents earlier today. 

“The kiwi’s looking pretty heavy this week, and in the near-term, it’s going to be dragged down by the Australian dollar,” said Khoon Goh, senior markets economist at ANZ National Bank. “Commodities have been sold off very aggressively and commodity currencies are weaker.”  

Goh said the currency may test 69.50 US cents this week, with rallies limited to about 70.50 cents.

ANZ National Bank will put out its commodity price index later today, while Fonterra’s online auction for wholemilk powder takes place on Wednesday.  Central banks will provide much of the focus for currencies this week, with the Reserve Bank of Australia, Bank of England and European Central Bank all scheduled to meet. The RBA will probably hike its benchmark interest rate 25 basis points tomorrow.

The market gives a rate rise a 60% probability of occurring, though this has come down over the past few weeks as Chinese regulators look to damp inflationary pressures in the world’s third-largest economy.

The kiwi gained to 79.48 Australian cents from 79.08 cents on Friday in New York.  

John Horner, currency strategist at Deutsche Bank in Sydney, said China’s performance of manufacturing index data out today will give a good idea as to how far regulators will go to tighten monetary conditions. Though support for the kiwi was strong at 69.75 US cents, “68 cents could be the next figure over the next couple of weeks,” he said.  

Neither the ECB nor Bank of England are expected to hike rates later this week, though both will be closely watched with the parlous state of the Euro-zone economy, according to Imre Speizer, markets strategist at Westpac. “The market will be looking for anything around Greece and the Euro-zone problems, or for the BoE to say anything about quantitative easing,” he said.

The kiwi will probably have a crack at its 69.75 US cents level, and it that goes, then it could end up between 66 and 69 cents, Speizer said. 

The kiwi was little changed at 50.67 euro cents from 50.66 cents on Friday in New York, and edged up to 44.04 pence from 43.78 pence.  

New Zealand labour data will also be on the agenda this week when Statistics New Zealand puts out the household labour force survey for the three months ended December 31.

The unemployment rate probably rose to 6.8% from 6.5%, according to a Reuters survey, with forecasts ranging between 6.5% and 7.2%.  

Six of seven economists predict the kiwi will trade in a range on the trade-weighted index as weakness in the euro and Australian dollar help offset any major losses against the greenback and the yen. One predicts it will fall on the TWI this week.  

The kiwi dropped to 64.86 on the TWI from 65.12 on Friday in New York, and declined to 63.40 yen from 64.37 yen.  

Also on the data radar this week is the quarterly employment survey and labour cost index tomorrow, with December’s visitor arrivals and the household labour force survey on Thursday.

A slew of US data this week will be rounded out by non-farm payrolls on Friday.

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