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NZ Dollar Outlook: Kiwi to rise on bets Fed will embark on QE3

Tuesday 10th April 2012

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The New Zealand dollar may rise this week on speculation the Federal Reserve will introduce a third round of asset purchases after a report showed US employers added fewer jobs than expected last month.

The New Zealand dollar recently traded at 82.02 US cents, down from 82.21 cents at 8am this morning. That’s at the higher end of this week’s range of 80.50 cents to 83 cents, according to a BusinessDesk survey of five analysts. Four of the five analysts surveyed predict the New Zealand dollar will finish the week higher.

Investors’ risk appetite gained momentum after a US Labor Department report revived speculation the Fed will embark on another round of quantitative easing, boosting demand for high-yielding currencies such as the kiwi. US non-farm payrolls showed their smallest gain in five months to 120,000 in March. That’s short of the 205,000 forecast by economists in a Bloomberg survey.

“The US dollar should have fallen and it did, but we weren’t quite sure if the kiwi would follow,” said Imre Speizer, market strategist at Westpac Banking Corp. “It was a bit messy but the New Zealand dollar has recovered.”

In January the Fed pledged to keep the Federal Funds Rate between zero and 0.25 percent until the end of 2014, saying it will hold off increasing monetary accommodation unless US economic expansion falters or prices rise at a slower rate than expected.

US data out this week includes the Beige Book on Wednesday, followed by a Michigan consumer confidence survey on Friday. Markets will be focused on a series of Fed speeches that will be scrutinised for any comment on the US labour market. Chairmen Ben Bernanke speaks today in Georgia with a speech titled, “Fostering Financial Stability.”

In China, New Zealand’s second largest export market, consumer price inflation accelerated 3.6 percent in March from a year earlier, according to the National Bureau of Statistics. That was more than the median 3.4 percent estimate in a Bloomberg News survey of 33 economists.

China’s trade balance is set for release for today, followed by gross domestic product on Friday.

“The relative strength of the Chinese data is really going to provide a check for risk appetite,” said Mike Jones, currency strategist at Bank of New Zealand. “The Chinese data will be a make or break for markets.”

It is a short week with a majority of financial markets closed on Monday for Easter.

In Australia, the focus will be on employment numbers set for release on Thursday.

The New Zealand Institute of Economic Research’s quarterly survey of business opinion is scheduled for release tomorrow. Statistics New Zealand accommodation survey for February and electronic card transactions for March are set for release on Thursday, as well as the ANZ-Roy Morgan Consumer Confidence Survey.

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