NZ Dollar Outlook: Kiwi may be volatile with slew of data, rate decisions, Brexit uncertainty

Monday 13th June 2016

The New Zealand dollar may be in for a volatile ride this week as traders face a slew of local data, the Federal Reserve decision on US interest rates, and continued uncertainty around Britain's referendum next week on European Union membership.

The kiwi may trade between 68.80 US cents and 72 cents this week, according to seven currency analysts surveyed by BusinessDesk. Three expect a decline, one expects a gain and three say it will likely remain broadly unchanged. It recently traded at 70.45 US cents.

Currency markets have been volatile ahead of the UK's June 23 vote on EU membership, with polling on the so-called 'Brexit' suggesting the decision is still too close to call. The Organisation for Economic Cooperation and Development has said Britain’s departure from the EU poses as big a threat to the global economy as a “hard landing” in China, with significant costs not just for the UK and Europe, but for the rest of the world.

"The UK referendum will be forefront of mind for investors and until that is out of our of the way, market conditions will be fairly choppy and illiquid," Bank of New Zealand currency strategist Jason Wong said in a note.

"The polls suggest a close outcome and momentum on current polling seems to lie with Brexit. The market is not prepared for such an outcome, with current pricing only likely reflecting a small chance of this occurring. The market is likely to take a more cautious approach in the lead-up, suggesting a risk-off tone that ought to be NZD-negative. Thus, we wouldn’t be surprised if the NZD lost a cent or two before 23 June.

"A vote to remain would see a sharp bounce-back, while Brexit would see a significant fall in global risk appetite and take the NZD down another leg, threatening the 0.65 mark," Wong said.

Data scheduled for release in New Zealand this week includes food prices on Tuesday; current account and real estate sales data on Wednesday, gross domestic product on Thursday, and manufacturing and consumer confidence on Friday.

The fortnightly GlobalDairyTrade auction is held overnight on Wednesday.

The Fed's decision on interest rates will be published Thursday morning New Zealand time and the US also has retail sales and inflation data.

The Bank of Japan and the Bank of England are also announcing decisions on Thursday, on top of UK unemployment and inflation data this week.

Australia releases labour market data and Europe will report inflation figures.

BusinessDesk.co.nz

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