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NZ Dollar Outlook: Kiwi may gain on GDP as Euro debt rating threat lingers

Monday 19th December 2011

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The New Zealand dollar may rise week, with gross domestic product data expected to show a pick-up in economic growth, providing a counterpoint to the looming threat of further credit rating downgrades in Europe.

The kiwi dollar traded recently at 76.41 US cents, up from 76.02 cents on Friday. That’s right in the middle of the currency’s largely unchanged forecast range for this week of 74.4 cents to 78.40 cents, according to a BusinessDesk survey of six analysts.

The final week before Christmas is busy for New Zealand data with the balance of payments for the third quarter due out on Wednesday and GDP on Thursday. The market is expecting GDP rose 0.6 percent in the third quarter after eking out a gain of just 0.1 percent three months earlier, according to a Reuters survey of 14 economists.

“New Zealand data will show that the economy is holding in there and is fairly resistant to what is happening globally,” said Kymberly Martin, market strategist at Bank of New Zealand.

The New Zealand dollar held above 75 US cents after Fitch Ratings lowered France’s rating outlook to negative and placed Spain, Italy, Belgium, Slovenia, Ireland and Cyprus on a “Rating Watch Negative” review, citing Europe’s failure to find a “comprehensive solution” to the debt crisis. Separately, Belgium’s credit rating was cut two levels to Aa3 by Moody’s Investors Service.

The Guardian newspaper has also reported Standard & Poor’s is threatening to downgrade France in coming days after it placed the ratings of 15 euro nations on review, including the region’s six AAA rated countries last week.

The kiwi didn’t move much after the Westpac McDermott Miller Consumer Confidence Index, released this morning, tumbled 11 points to 101 in the final three months of 2011, nearing the 100 level that separates pessimists from optimists being in the majority.

That's the lowest level since the depths of recession in 2009 in the face of increasingly gloomy news from Europe and the fading effects of the Rugby World Cup.

“Peering through the clouds of doom is Europe,” said Peter Cavanagh at Bancorp, “It remains the bigger elephant in the room - Europe is only just overcoming its state of denial.”

The UK and US will release their GDP figures on Thursday and the final reports for the US housing market and durable goods are also due out this week.

In Australia, the Reserve Bank will release minutes from its Dec. 6 meeting on Wednesday, which will provide more clues to its thinking in cutting its cash rate to 4.25 percent from 4.5 percent. The RBA cited slowing growth in China, Europe's financial crisis and a benign inflation outlook in New Zealand’s biggest export market for its decision.


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