NZ Dollar Outlook: Kiwi may gain as speculators take profits in quiet data week

Monday 22nd June 2015

The New Zealand dollar may gain this week as investors who successfully shorted the currency in recent weeks bet that its decline has run out of puff in a quiet patch for local data.

The kiwi may trade between 68 US cents and 71.20 cents this week, according to 13 currency analysts surveyed by BusinessDesk. Six bet the currency would gain, four said it may remain relatively unchanged and three picked it to fall. It recently traded at 68.96 US cents.

The local currency has shed more than 9 percent since the start of May as expectations mounted that the Reserve Bank would start reducing interest rates, which was confirmed when it cut the benchmark a quarter point to 3.25 percent on June 11. In the lead up to the decision, speculative investors held a record level of net short positions on the Chicago Mercantile Exchange, betting the currency would fall. With little data due out to drive the kiwi lower this week, investors who are borrowing to make bets may crystallise their profits.

"Leveraged investors will become frustrated when kiwi stops moving to the downside," said Bank of New Zealand currency strategist Raiko Shareef. "They will take profit on their positions if it becomes clear that kiwi is not going to continue to fall at the rate that it has over the past month and a half."

Those expecting the currency to fall cited the expectation for local interest rates to move lower while improving data in the US supported the case for higher rates there.

Migration data released this morning showed it rose to a new record in May while credit card balances for the month will be published this afternoon. Data on high debt mortgage lending will be published Thursday and merchandise trade for May is due Friday.

Elsewhere, Chinese manufacturing data due out tomorrow is expected to show the sector remained in contraction. China is New Zealand's largest trading partner.

In the US, the final reading of first quarter gross domestic product is scheduled for publication on Thursday. The Federal Reserve is expected to start lifting interest rates from near zero this year looking through weakness in the first three months.

In Europe, traders will be keeping an eye on negotiations between Greece and its creditors as talks come to a crunch today. After months of pushing back against austerity measures, the Greek government is offering some concessions before euro leaders are to gather in Brussels today for an emergency session on the fiscal fate of the nation.

Uncertainty around Greece may be reflected in Germany’s IFO business climate index, due Wednesday.

In Japan, Friday's data on May inflation will be closely watched by the Bank of Japan as it remains well below its 2 percent target, suggesting further easing in policy may be ahead.

BusinessDesk.co.nz

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