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NZ Dollar Outlook Kiwi to fall on Brussels summit

Monday 25th June 2012

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Foreign exchange analysts say the New Zealand dollar may fall this week as European policymakers meet to discuss their responses to the region's sovereign debt concerns at a summit in Brussels.

The New Zealand dollar recently traded at 78.95 US cents, up from 78.90 cents just before 8am. That's right in the middle of this week's predicted trading range of 76.50 cents to 80.60 cents, according to a poll of five analysts in a BusinessDesk survey.

Of the analysts surveyed, three said the kiwi will finish lower, one higher and one unchanged.

The New Zealand dollar held near a seven week high as German Chancellor Angela Merkel, Italian Prime Minister Mario Monti, French President Francois Hollande and Spanish Prime Minister Mariano Rajoy agreed to lobby for a European Union growth plan worth up to 130 billion euros. Merkel continues to resist calls for funds to be used to buy bonds of troubled nations.

Merkel is under pressure to do more to stem the crisis as EU leaders prepare to meet in Brussels on Thursday for a two day summit. That will be the 20th summit since Greece’s financial meltdown rattled the euro.

"Markets will be nervous this week waiting for the euro-zone council result," said Imre Speizer, market strategist at Westpac Banking Corp. "We are not going to see much out of the euro-zone till Friday. They need to table something substantial and if they don't, markets will be disappointed come Monday morning."

The US has plenty of data due this week, with home sales statistics set for release Monday, followed by consumer confidence on Tuesday and durable goods orders on Wednesday. The latest statistics on gross domestic product and jobless claims are out on Thursday.

"The risk is that data is likely to be softer, weakening the US dollar, benefitting the kiwi," said Mike Jones, a currency strategist at Bank of New Zealand.

American consumer confidence is expected remain unchanged in May following a 0.3 percent jump in April, according to a Bloomberg poll, yet another sign that the world's largest economy may be easing. Last week the Federal Reserve extended its stimulus measures, replacing short-term bonds with longer-term debt by US$267 billion through the end of 2012.

New Zealand's second largest export market, China has a slew of data out at the end of week, with the leading index and business sentiment and purchasing managers' index. The HSBC preliminary purchases manager index gave a reading of 48.1 in June, indicating that Chinese manufacturing could shrink for an eight consecutive month, amid reports that Chinese coal demand has also been easing.

Official data for release in New Zealand this week covers international visitor arrivals, due Tuesday, followed by merchandise trade on Wednesday and building consents for May on Friday.

The National Bank Business Outlook survey will be released on Thursday, while the Reserve Bank's monetary and credit aggregates are due out on Friday.

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