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NZ Dollar Outlook Kiwi may rise on Spanish bailout speculation

Monday 6th August 2012

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The New Zealand dollar may extend gains from a three-month high this week on speculation Spain will prompt the European Central Bank to resume is bond-buying programme, boosting demand for risker-assets.

The New Zealand dollar recently traded at 81.78 US cents, little changed from 81.89 cents at 8am. That's right in the middle of this week's trading range of 80.50 cents to 83.20 cents, according to a BusinessDesk survey of five analysts.

Three out of five analysts predict the kiwi will finish the week higher, one lower and one refused to comment.

Prime Minister Mariano Rajoy hinted Spain may be forced to ask Europe's central bank for a bailout to cover its rising debt. The ECB last week signaled plans to buy short-term bonds to ease the pressure on indebted nations such as Spain and Italy. Spain's two-year bond yields dropped 135 basis points to 3.96 percent on Friday. Its 10-year yield fell back below the 7-percent mark.

"The reason this is positive for risk appetite is because the ECB said they may do things but only if countries officially ask for help," Imre Speizer, market strategist at Westpac Banking Corp. "When Spain officially ask that is the trigger for ECB action - that is the trigger for the kiwi."

ECB president Mario Draghi have previously pledged to buy short-term bonds as well as pledging to do "whatever it takes" to preserve the single currency, though he hasn't given a deadline.

Federal Reserve chairman Ben Bernanke will speak twice this week and markets will be looking for fresh clues about how the world's largest economy has changed after Friday's upbeat employment figures. US employers added 163,000 jobs last month, beating the 100,000 expected by economists surveyed by Bloomberg.

A Reuters polled showed there is a 63 percent chance the Fed will act for the third time to expand its balance sheet via large-scale bond purchases.

In the US, the earnings season will continue to set the tone for equities with Walt Disney, Macy's and JC Penney all report earnings this week. About 73 percent of the Standard & Poor's companies which have reported so far have beaten estimates, according to Bloomberg.

China, New Zealand's second-largest export market, has a raft of data out this week, with inflation and retail sales on Thursday followed by trade balance statistics on Friday.

"The Chinese data is what I call quasi local - it will be a big driver for the Aussie and we will follow suit," Speizer said.

The kiwi fell to 77.34 Australian cents from 77.48 cents at 8am. The Reserve Bank of Australia meets to review its target cash rate on Tuesday and is expected to hold the rate unchanged at 3.5 percent.

In New Zealand, ANZ Job Advertisements will be released this afternoon. That's followed by the quarterly employment survey and labour cost index for the June quarter on Tuesday, and the household labour force survey on Thursday. Accommodation and the electronic cards are due out on Friday, all from Statistics New Zealand.

QV monthly house price statistics for July will be released on Wednesday.

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