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NZ Dollar Outlook: Big week of rate decisions and data

Monday 31st October 2011

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The New Zealand dollar is expected to rise early in the week and ease later in the week as investors absorb developments in the European financial crisis and monetary policy decisions in Australia, the United States and Europe.

The kiwi, which recently traded at 82.03 US cents, may trade between 80.68 cents and 83.31 cents this week, according to a poll of six analysts by BusinessDesk.

The local currency eased slightly on Monday morning when the Australian dollar rose on news that Qantas will resume services after Fair Work Australia granted the Federal Government's application to halt the industrial action.

The kiwi surged last week on a relief rally that European policymakers cut a deal they hope will fix the region’s banking system and stop Greece’s sovereign indebtedness from spreading.

The initial optimism has been tempered as some negative comments about the deal emerge and there are doubts it will hold together.

"The dominant influence this week will still be Europe. I expect it will be a week of disappointment as people go through the detail," said Imre Speizer, market strategist at Westpac.

Dan Bell, senior currency strategist at HiFX, said trading on Monday morning was a "crap shoot" due to the thinness of trading and it was a huge week for market.

The market was fully pricing in a 25 basis point cut in Australia's benchmark interest rate, which is currently 4.75 percent, on Tuesday. This is followed by Australian build approvals data on Wednesday, retail sales data on Thursday and the full RBA monetary policy statement on Friday.

Locally, the election campaign is providing plenty of platforms for comments on the economy by election candidates, including a function hosted by Business New Zealand today.

Bell said the kiwi has "the legs" to get to 85 US cents but not this week.

Locally, building consents data for September is due today, the Quarterly Employment Survey Labour Cost Index for the September quarter is due on Tuesday and on and the household labour force survey, which includes the unemployment rate and employment growth, is due on Thursday.

There has been speculation that the Federal Reserve may embark on a third round of quantitative easing after a policy meeting this week. The decision of the Federal Reserve Open Market committee is due on Thursday morning New Zealand time and a European Central Bank decision is due on Thursday night.

The Fed pledged in August to hold the benchmark interest rate near zero at least through the middle of 2013 so long as unemployment is high and inflation is low.

"The recent run of data is reducing the chances of another round of quantitative easing," said HiFX's Bell.

Investors are also awaiting purchasing managers' index reports from many economies, including China, this week, and US payrolls data on Friday night New Zealand time.

On top of that, the market wants to see if the deal struck last week after a late night meeting of European Union leaders is built on at a Group of 20 summit in Cannes this coming weekend.

The summit is the sixth in a series of on-going discussions about financial markets and the world economy by leaders.

Analysts are looking at the extent of support from the rest of the world for Europe and if European plans will hold together.

There is also speculation that Japan will intervene to knock the yen down after it hit a post-World War II high of 75.66 per US dollar last week.

The kiwi, which recently traded at 76.83 Australian cents, is expected to trade in a range between 76 cents and 78 cents this week.

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