NZ Dollar Outlook: US interest rate views to drive kiwi this week

Monday 4th April 2016

Sentiment about US interest rates will probably drive the kiwi this week, with analysts split on the currency's direction.

The local currency may trade between 67.20 US cents and 71 cents this week, according to 12 analysts in a BusinessDesk survey. Five expect the kiwi to gain, five bet it will decline and two say it will remain largely unchanged. It recently traded at 68.96 US cents.

Currency traders are adjusting their outlook for US interest rates after the Federal Reserve last month pulled back its expectation for hikes this year to two, from four, and following Fed chair Janet Yellen's comments in a speech last week that the Fed should "proceed cautiously" in adjusting policy. That's made the greenback less attractive even in the face of robust economic data such as last week's non-farm payrolls report, and pushed up the value of other currencies like the kiwi.

"The US dollar will still be under downward pressure even with that good payrolls number but I can understand that some people will say that the payrolls data was quite good and although the dollar didn't go up, it should do later on this week," said Imre Speizer, senior market strategist at Westpac Banking Corp in New Zealand. "What I've seen so far is the market didn't really give that too much heed and it still wants to sell the US dollar because it thinks that the Fed will be quite reluctant to hike this year."

Speizer said Yellen's public comments in the US on Thursday will be the key event for the week. Yellen will join a panel discussion at International House, a New York nonprofit that seeks to bring together students from different countries, along with former Fed chairs Ben Bernanke, Alan Greenspan and Paul Volcker. It will be the first joint public speaking appearance by the four Fed leaders.

"If she backs up what she said, that she's still kind of reluctant, then I think the US dollar will stay in the dogbox, but if she surprises people and says gee the payrolls number was actually pretty good and things are starting to look a bit better and the global risks are not too bad and maybe I was a wee bit harsh last week and I'm a bit more optimistic this week, then the US dollar will pick up, so her comments this week are pretty important for the dollar," Speizer said.

Other Fed officials scheduled to speak in the coming days include Boston Fed President Eric Rosengren and Minneapolis Fed boss Neel Kashkari, today; Chicago Fed's Charles Evans on Tuesday; Cleveland Fed's Loretta Mester and Dallas Fed's Rob Kaplan on Wednesday; Kansas City Fed's Esther George on Thursday; and Kaplan again on Friday.

The Fed will release the minutes to its March meeting on Wednesday, which will be scrutinised for any clues to future interest rates. US economic reports slated for release this week cover manufacturing, trade, services, and jobless claims.

In New Zealand this week, the New Zealand Institute of Economic Research publishes its quarterly survey of business opinion tomorrow, with inflation indicators likely to be closely watched.

Auckland real estate agency Barfoot & Thompson is expected to publish its monthly housing data tomorrow, with state-owned Quotable Value due to release its latest data on property values on Wednesday.

On the commodities front, ANZ Bank is due to publish its monthly commodity price index tomorrow, and the latest update on dairy prices will come with the GlobalDairyTrade auction early Wednesday morning. Speizer said he's expecting little change in the regular auction.

Primary Industries Minister Nathan Guy may detail plans to provide support to dairy farmers at a scheduled event tomorrow. Prices for dairy products, New Zealand's largest commodity export, have remained low for longer than expected as supply outweighs demand.

In contrast, monthly vehicle registration data due out tomorrow may show the country continues to break monthly records, aided by record migration and economic growth.

Elsewhere, Australia's Reserve Bank is expected to keep interest rates on hold at its review tomorrow. This week the country also has data on retail sales, building consents, and trade this week. RBA assistant governor economic Christopher Kent is due to speak on Wednesday about economic forecasting at the RBA.

Commodity-linked currencies like the kiwi and Aussie may be influenced by oil prices this week, analysts said. Oil declined following a report showing Russia's output rose in March to its highest level since 1987, and after comments from Saudi Arabia’s deputy crown prince Mohammed bin Salman that the kingdom will only freeze production if Iran and others follow suit.

In Europe, economic data due for release this week include unemployment, manufacturing, retail sales, industrial production and trade.

(BusinessDesk)

BusinessDesk.co.nz

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