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NZ Dollar Outlook Kiwi may gain as investors favour riskier assets

Monday 18th November 2013

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The New Zealand dollar may gain this week as higher risk assets remain in favour.

The local currency may trade between 81.80 US cents and 85 cents this week, according to a BusinessDesk survey of nine traders and strategists. Five expect the currency may gain while four expect the currency to remain unchanged. The kiwi recently traded at 83.48 US cents from 83.45 cents at 8am in Wellington.

The greenback has softened on expectations the Federal Reserve won't pull back anytime soon on its US$85 billion a month bond buying monetary stimulus programme, which has increased the amount of US dollars in circulation, weakening the currency. Janet Yellen, who is set to replace Fed chair Ben Bernanke in January, signalled last week that the Fed will keep the stimulus programme intact until the US economy shows more strength and stability.

This week should see "a continuation of an upward move in risk assets", said Stan Shamu, market strategist at IG Markets. "I think there is more potential for upward bias rather than downward bias."

Riskier assets were more in favour amid a backdrop of continued dovish commentary from the Fed, reformist releases from the third Chinese Plenum and an easing bias for the Bank of Japan, which meets this week, Shamu said.

In New Zealand this week, traders will be eyeing the latest GlobalDairyTrade auction on Wednesday which may show prices edged lower as milk supply picked up following the drought.

Also on Wednesday a report on third quarter producer prices will be watched for signs of a pick-up in inflation while a report on weekly home loan approvals will be scrutinised for signs on whether the Reserve Bank's restrictions on high-debt mortgage lending are starting to bite.

Credit card spending data for October is out on Thursday and on Friday a report on tourist arrivals for the month will be analysed for signs rising immigration may buoy housing demand and push up house price inflation.

In Australia tomorrow, traders will be eyeing the minutes from the Reserve Bank of Australia's last meeting on Nov.5 when it kept the benchmark rate at 2.5 percent.

Australia's central bank said the Australian dollar is "uncomfortably high" and threatens to stymie an economic recovery away from the slowing mining sector. Lowering interest rates further would weaken the Aussie and bolster investment but may also stimulate the housing market, risking an asset price bubble.

Governor Glenn Stevens may provide further insights into his views on the Aussie when he speaks at a dinner for economists on Thursday evening in a speech entitled 'The Australian Dollar: Thirty Years of Floating'. Meanwhile, assistant governor Guy Debelle will speak as part as a panel on Wednesday on financial markets.

On Wednesday, Australia has a report on skilled vacancies for November which may show a stabilising jobs market, while goods imports for October may give an insight into trade. On Friday, Australia publishes its annual state accounts.

Also this week, Wednesday sees the release of the US Federal Reserve minutes from its Oct. 29-30 meeting and the Bank of England minutes from its Nov. 7 meeting. Meanwhile, the Bank of Japan is scheduled to announce its latest rate decision on Thursday.

The Fed minutes will be scrutinised for clues on the outlook for tapering the central bank's bond buying programme. Yellen told a confirmation hearing before the Senate Banking committee last week that the Fed will keep the stimulus programme intact until the US economy shows more strength and stability.

Reports on US retail sales, home sales and inflation are due for release this week and 11 speaking engagements are scheduled for Fed officials.

Also scheduled for publication are reports on manufacturing for the US, Europe and China.

BusinessDesk.co.nz

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