NZ Dollar Outlook: Kiwi at the mercy of overseas moves this week

Monday 2nd March 2015

The New Zealand dollar will probably be at the mercy of overseas news this week with several central bank meetings and key data releases.

The kiwi may trade between 74.20 US cents and 77.60 cents, according to a BusinessDesk survey of 12 currency traders and strategists. Five expect the currency to gain, while five say it may decline and two bet it will remain relatively unchanged. It was recently trading at 75.52 US cents.

Some 20 central banks around the world have eased monetary policy so far this year and traders will be eyeing meetings in Australia, Europe, England and Canada this week for policy updates. China's central bank cut its benchmark rate at the weekend as Asia's largest economy tries to bolster slowing growth and ward off deflation, ahead of the annual meeting of the country’s parliament this week where officials are expected to announce this year’s growth target.

Key data releases this week include US non-farm payrolls, which will be closely watched by the Federal Reserve ahead of its March 17-18 meeting; European inflation; and gross domestic product for Europe and Australia.

"We are just going to be at the machinations of offshore markets," said Tim Kelleher, ASB Bank head of institutional FX sales in New Zealand. "It's quite a big week for data so it's going to be interesting but none of it is affecting us, so we are going to be the side show."

The first major driver for kiwi is the Reserve Bank of Australia's interest rate decision tomorrow. Traders are pricing in a 50 percent chance of a rate cut after the central bank reduced the rate to a record low 2.25 percent at it last meeting, according to the Overnight Index Swap Curve.

The New Zealand dollar recently traded at 96.70 Australian cents, having touched a record post float high of 97.07 cents last month as the prospects for the two economies diverge.

"If the RBA cut, it's going to put kiwi/Aussie under further pressure to go higher towards parity," said the ASB's Kelleher. "If they don't cut I think you will see some short covering in Aussie dollar so it will push the kiwi/Aussie cross down."

Kelleher said prices will probably firm further at Fonterra Cooperative Group's upcoming GlobalDairyTrade auction overnight on Tuesday, however that's unlikely to boost the local economy in the short term after Fonterra last week kept its forecast for the current season unchanged at $4.70 per kilogram of milk solids.

Other data scheduled for release in New Zealand this week includes monthly commodity prices and house prices, and fourth quarter building work put in place.

Australian data this week includes building consents, the current account, trade, retail sales, visitor arrivals and commodity prices.

ASB's Kelleher said the kiwi could drop sharply at the end of the week on a strong US payrolls report. The US dollar has been volatile as traders bet on when the Federal Reserve is likely to start raising interest rates as the world's largest economy recovers. The report is expected to show the US added more than 200,000 jobs for a 12th consecutive month in February.

BusinessDesk.co.nz

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