Dollar outlook: Kiwi may gain on TWI as confidence in US recovery grows

Monday 10th August 2009

The New Zealand dollar may gain on a trade-weighted basis this week as stronger-than-expected jobs data in the US boosted confidence the world’s largest economy is recovering from its deepest recession since World War II.

Six of seven economists and strategists in a BusinessWire survey predict the kiwi will stay in its current range or gain this week on the TWI, a measure of the currency versus the greenback, Australian dollar, yen, euro and pound, as a pick-up in the US economy boosts the prospects of a global recovery. One says it may decline against the basket of currencies.

Non-farm payrolls in the US fell by 247,000 last month, half that of the previous month, as the jobless rate slipped to 9.4% from 9.5%, according to the Labor Department.

The greenback jumped in its first gain from positive economic data in many months, climbing 1.6% to 78.90 on the Dollar Index, a measure of the currency versus a basket of trading partners. Stocks on Wall Street and in Europe rallied on the data, with the Standard & Poor’s 500 climbing to a 10-month high.

“The kiwi is growth sensitive, so if we’re leveraged to global growth, expect to see it go higher,” said Danica Hampton, currency strategist at Bank of New Zealand. With Eurozone second-quarter gross domestic product expected to show a 0.5% contraction, the kiwi may gain against the euro “and remain supported on dips on the TWI,” she said.

The kiwi jumped to a 10-month high 62.90 on the TWI from 62.30 on Friday in New York, and was recently at 62.72. It climbed to 47.27 euro cents from 46.72 cents last week in New York.

Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney, predicts the currency will fall on a trade-weighted basis as traders return to the US dollar on the prospect its economy is on the road to recovery, and Japanese investment houses cut back on offshore spending this month.

“Planned Toshin fund launches that have helped support yield currencies are slowing off this month,” and that should see the yen cross ease, Trinh said. The kiwi climbed to a 10-month high 65.32 yen from 63.85 yen on Friday in New York.

Five of seven economists and strategists surveyed by BusinessWire predict the kiwi will gain or trade in its current range against the US dollar after the greenback broke its inverse relationship with risk sentiment on the back of the jobs data. Two forecast the New Zealand dollar will fall this week.

The kiwi was little changed at 67.10 US cents from 67.13 cents on Friday in New York, after it fell below 67 cents on the US employment data.

Robin Clements, economist at UBS New Zealand, said the currency will probably be supported by an increase in consumer spending in the June quarter. Statistics New Zealand releases retail sales on Friday.

Economists predict consumer spending grew 0.2% in the three months ended June 30.

“Retail sales are expected to be slightly stronger and should offer some support to the kiwi,” Clements said.

Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney, expects the kiwi to grind lower this week as the greenback begins to gain traction on upbeat sentiment and as the prospects increase for the US economy to flourish.

“For the first time in a long, long time, we’re starting to see the relationship (between positive economic news in the US dragging the greenback down) beginning to break down,” he said.

Retails sales in the US should be a key indicator, with traders looking to see if the so-called cash for clunkers scheme has started to gain some traction, Rennie said. The scheme offers minimum trade-ins when Americans buy new cars.

The Federal Open Market Committee will review interest rates on Wednesday in the US and is expected to the major risk event for the kiwi dollar this week. While the Fed isn’t likely to cut rates, investors will be looking for any indication of an exit strategy from the zero rates policy and quantitative easing programme, Hampton said.

Reserve Bank of Australia Governor Glenn Stevens will testify before Australia’s Parliament on Friday and is expected to reiterate his neutral stance on monetary easing. Last week, Stevens said the RBA raised the prospect it will hike interest rates as the economy recovers.

The kiwi was little changed at 80.21 Australian cents from 80.23 cents on Friday in New York.

Property prices in New Zealand improved for the third consecutive month in July as the house values fell 5% in the 12 months ended July 31, up from a 7.1% decline in the same period through June, according to QV Valuation data.

Real Estate Institute figures out later this week are expected to show a similar trend in property values, and Trinh said the pick-up in housing indicates Reserve Bank of New Zealand Governor Alan Bollard won’t cut interest rates in New Zealand any further.

On the data radar this week is electronic card transactions out tomorrow, which is a more up-to-date indicator of consumer spending.

Businesswire.co.nz

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