NZ Dollar Outlook: Kiwi may decline as outlook for US economy brightens

Monday 25th May 2015

The New Zealand dollar is expected to head lower this week as traders bet an improving US economy will push the greenback higher.

The kiwi may trade between 70.60 US cents and 75 cents this week, according to a BusinessDesk survey of 13 currency advisers. Eleven expect the kiwi to fall and two bet it will gain. It recently traded at 72.98 US cents.

The US dollar jumped at the end of last week after a report showed US inflation was gathering steam and following a speech by Federal Reserve chair Janet Yellen, where she confirmed that the central bank remains intent on lifting its benchmark interest rate at some point this year.

"For kiwi, there's not a great deal of data out this week so I think we will be at the machinations of offshore," said Tim Kelleher, ASB Bank head of institutional FX sales. "It's more a strong dollar story. We have probably seen the dip in the US dollar that we were going to get, so I think the bias is back on to the commodity currencies being a bit weaker again. I don't think we will collapse to any lows, but we will edge down a bit."

Expectations that the Reserve Bank may cut interest rates as early as next month's meeting are also weighing on the kiwi, Kelleher said. Traders are pricing in a 50 percent chance of a cut at the RBNZ's June 11 monetary policy statement, according to the Overnight Index Swap Curve.

Among concerns raised by the Reserve Bank are weaker than expected dairy prices. Fonterra Cooperative Group is expected to announce its milk price for the upcoming 2015/16 season following its board meeting on Wednesday. Last month, Fonterra cut its forecast payout to farmers for the 2014/15 season to $4.50 per kilogram of milk solids from $4.70/kgMS after whole milk powder prices failed to strengthen as expected, and analysts have pulled back their expectations for the coming season's payout.

Tomorrow, New Zealand's trade data for April is released while April building consent data is published on Friday.

The New Zealand Institute of Economic Research releases its latest quarterly economic predictions tomorrow. The Reserve Bank publishes April data on new residential mortgage lending within its loan to valuation limits tomorrow and its foreign exchange transaction data on Thursday.

The US market is closed today for a Memorial Day holiday. US data scheduled for release this week includes durable goods orders, home sales, consumer confidence, and revised first quarter GDP.

For further clues on the timing of a US rate increase investors will eye Fed officials speaking this week. They include Cleveland Fed President Loretta Mester in Iceland, and Fed Vice Chair Stanley Fischer, in Israel today; Richmond Fed President Jeffrey Lacker, on Tuesday; as well as San Francisco Fed President John Williams in Singapore, and Minneapolis Fed President Narayana Kocherlakota, on Thursday.

Currency advisers in the BusinessDesk survey who expect the kiwi to advance this week cited expectations for weaker US data, including a downward revision to first quarter GDP, and bets that the US dollar rally would run out of steam.

In Australia this week, Reserve Bank of Australia deputy governor Philip Lowe is scheduled to speak to the Thomson Reuters’ 3rd Australian Regulatory Summit in Sydney on Wednesday. Capital expenditure data for the first quarter and intentions for the coming year will be published on Thursday.

Elsewhere, the Bank of Canada is expected to keep interest rates unchanged at its meeting on Wednesday, UK first quarter GDP is published Thursday and Japan inflation for April is due on Friday.

BusinessDesk.co.nz

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