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NZ Dollar Outlook Kiwi may hold its ground vs. stronger greenback with local rates set to rise

Monday 4th November 2013

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The New Zealand dollar may hold its own against a stronger US dollar in the coming week, underpinned by a reviving local economy where interest rates are heading up.

The local currency may trade between 81.20 US cents and 84.50 cents this week, according to a BusinessDesk survey of nine traders and strategists. Four expect the currency to remain unchanged while three say it may gain and two expect it to drop. The kiwi recently traded at 82.52 US cents from 82.56 cents at 8am in Wellington.

The US dollar has been gaining on better data and a less downbeat tone from the Federal Reserve. Still, New Zealand's currency has retained the support of investors, underpinned by the prospect of the Reserve Bank raising interest rates next year.

"The kiwi will probably remain contained in the range of the last couple of months rather than breaking any new direction," said Imre Speizer, markets strategist at Westpac Banking Corp in Auckland. "Just recently we have seen a pickup in sentiment towards the US dollar and it has had quite a strong bounce and I think that might continue over the next few weeks. The US dollar direction is a headwind for it but the Reserve Bank is a support for it, those two things are being offset to some extent."

"It might be more of a case of the kiwi being contained rather than running away to the downside," Speizer said. "The Reserve Bank is going to hike rates and that makes it hard for people to sell the kiwi much."

In the US this week, reports are due on third quarter growth, October payrolls and unemployment, October service industries activity and November consumer confidence.

Westpac's model predicting data surprises suggests the market has become overly pessimistic about US data, Speizer said.

"That is the risk for the US dollar over the next few weeks because people have become too pessimistic about their economy and the data that unfolds might not be that bad," Speizer said.

In New Zealand this week, traders will be eyeing the third-quarter labour market report on Wednesday which is expected to show a gradual strengthening even though the quarterly figures are often volatile.

The nation's unemployment rate is likely to have edged lower to 6.3 percent from 6.4 percent, according to a Reuters poll of 12 economists.

"We would expect to see a further improvement in the labour market and that should be supportive for the kiwi," Speizer said.

In Australia, reports are out this week on September retail sales, September's trade balance and labour market data for October.

The Reserve Bank of Australia is expected to keep its benchmark interest rate unchanged at 2.5 percent following its meeting tomorrow, and reiterate its neutral stance.

Meanwhile, the European Central Bank at its meeting on Thursday may signal further rate cuts are on the way after a lower-than-expected inflation report last week. That is likely to continue to put pressure on the euro, Speizer said.

The Bank of England, which is meeting the same day, is expected to keep its benchmark rate unchanged at 0.5 percent.

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