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NZ Dollar Outlook: Kiwi may fall if housing curbs pave the way for rate cuts

Monday 9th May 2016

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The New Zealand dollar may decline this week on expectations the Reserve Bank could add further restrictions to the housing market, paving the way for future interest rate cuts.

The kiwi may trade between 67 US cents and 70 cents, according to 10 currency analysts surveyed by BusinessDesk. Five expect it to decline, two bet it will gain and four say it will probably remain relatively neutral. It recently traded at 68.34 US cents.

The Reserve Bank's interest rate track has come sharply into focus after the Reserve Bank of Australia cut its benchmark rate last week and slashed its outlook for future inflation, stoking speculation rates in Australia and New Zealand may fall further. The RBNZ's six-monthly gauge of financial stability is due for release on Wednesday, with analysts mulling the prospect for additional curbs on the bubbling housing market which may free up Governor Graeme Wheeler to reduce rates further in the future.

"A move to tighten macro-prudential tools will clear the path for further rate cuts this year," ASB Bank economist Daniel Snowden said in a note. "Given the market is looking for further rate cuts, there is potential for a firmer New Zealand dollar off the back of any sign the bank’s thinking is less in-line with those across the ditch, while new housing measures (or the lack of) will also be key for direction."

ASB expects the RBNZ to cut rates in June and August.

Finance Minister Bill English will also feature this week when he delivers a pre-Budget speech to a Wellington Chamber of Commerce lunch on Thursday. The government's financial statements for the nine months through March are published on Tuesday. 

April data scheduled for release this week includes electronic card spending and the ANZ inflation gauge on Tuesday, Real Estate Institute house sales data on Wednesday, and food prices and the BNZ-BusinessNZ Performance of Manufacturing Index on Thursday. First-quarter retail sales are published on Friday.

Elsewhere this week, Australia has consumer confidence data on Wednesday, China has inflation data on Tuesday, Japan releases its current account balance on Thursday, the US has retail sales on Friday while the Eurozone publishes its second reading of first-quarter GDP on Friday. 

In the UK, the Bank of England isn't expected to change policy following its review on Thursday.

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