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NZ Dollar Outlook: Kiwi may fall on Chinese data, Greece

Monday 14th May 2012

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The New Zealand dollar may extend its slide this week as investors digest weak data out of our second-biggest export market, China and the prospect of fresh elections in Greece loom, sapping risk-appetite.

The New Zealand dollar recently traded at 77.89 US cents, down from 78.29 cents at 8am. That's at the lower end of this week's trading range of 77 cents to 90 cents, according to a BusinessDesk survey of six analysts.

Of the analysts surveyed, four predict the New Zealand dollar will finish the week lower and two higher.

The currency largely ignored news that China had cut the reserve requirement ration for banks by 50 basis points to 20 percent after a string of weak data pointed to slowdown in growth, a move expected to stoke lending and economic activity. On Friday, the nation's industrial output growth slowed to 9.3 percent in April, missing estimates. Its import gains also stalled in April.

"That bit of news has been largely priced in now but the whole China story is not going away and the market is feeling more relaxed about a hard landing - the People's Bank of China stand ready to do anything," said Kymberly Martin, market strategist at Bank of New Zealand.

The political stalemate continues in Greece with no government, the risks of the Mediterranean nation leaving the euro continue to rise. On Sunday, leaders from the country's three biggest parties failed to reach an agreement after the nation's biggest anti-bailout party Syriza, again ruled out joining a unity government.

"Even though there is quite a raft of economic data out this week it will be playing second fiddle to Greek concerns," said Peter Cavanaugh, senior client adviser at Bancorp.

European industrial production figures due out on Monday, followed by gross domestic product on Tuesday and inflation, trade balance and unemployment on Wednesday.

Euro zone finance ministers will meet on Monday in Brussels, followed by a meeting of all European Union finance ministers the next day. On Wednesday, German Chancellor Angela Merkel is set to meet Nicolas Sarkozy's successor, Francois Hollande.

Investors will be eyeing the sale of Italian, Spanish and French government bonds this week to see whether the region’s debt crisis is continuing to worsen. Italy will sell notes on Monday, followed by Spanish and French debt sales on Thursday.

It will be the first French auction since Francois Hollande defeated incumbent Nicolas Sarkozy as President last Sunday.

BNZ's Martin said, "Relatively speaking the New Zealand/Euro cross will hold up better than the New Zealand dollar against the US dollar."

In the US, the world's largest economy, investors will be looking to the minutes of the latest Federal Open Market Committee meeting, released on Wednesday. Data out this week includes consumer prices and retail sales on Tuesday, followed by housing and industrial output on Wednesday.

Tim Kelleher, head of institutional FX Sales NZ ASB Institutional said, "We could find some of the US data is reasonable again because it has been a bit patchy and the will add to the kiwis weakness."

America's earnings season continues with Home Depot, Target and Wal-Mart set to release their results this week.

New Zealand's largest export market, Australia will release the minutes from May's Reserve Bank meeting on Tuesday. The RBA slashed half a percentage point from its benchmark interest rate to 3.75 percent citing a persistently high currency and slowing output growth.

New Zealand's first-quarter retail trade data released this morning showed the total volume of spending fell a seasonally adjusted 1.5 percent to about $17 billion, according to Statistics New Zealand. It was led by a decline in spending on supermarket and grocery items after a spend-up during the Rugby World Cup.

The BNZ-BusinessNZ performance of services index also out this morning showed the country's service sector picked up in pace last month, rising 2.5 points to 56.7. That's the highest level since November and the second highest since the survey began in April 2007.

Fonterra's GlobalDairyTrade auction takes place on Wednesday morning, while the ANZ Job Advertisements for April and March's Producer Price Index from Statistics New Zealand are released on Thursday.

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