NZ Dollar Outlook: Kiwi may fall on economic wobbles

NZ Dollar Outlook: Kiwi may fall on economic wobbles, US recovery

By Paul McBeth

Feb. 7 (BusinessDesk) – The New Zealand dollar may fall this week as weak employment data last week puts the knockers on to the local economy, while the U.S. recovery looks more stable after optimistic jobs data on Friday.

Five of eight economists and strategists in a BusinessDesk survey expect the kiwi will fall this week, with a further two holding a negative bias. The last strategist has a positive bias for the kiwi dollar this week. That comes after last week’s household labour force survey showed New Zealand’s unemployment rose 0.4 percentage points to 6.8% in the December quarter, adding to concerns about the local recovery. The kiwi fell to 76.89 U.S. cents from 77.22 cents on Friday in New York.

At the same time, strong employment data in the U.S., which saw the jobless rate unexpectedly fall to 9%, bolstered the yield on 10-year Treasuries to 3.64%, the highest level since May last year, and underpinned support for the greenback.

“The kiwi’s highly susceptible to a sell-off this week after it lost its yield advantage” in the wake of the employment data, said Mike Jones, strategist at Bank of New Zealand. “Payrolls could be over-stating employment in the labour market, and it will be interesting how the Fed sees that fall in the unemployment rate in terms of participation.”

With little local data on the horizon this week, Jones said several officials from the Federal Reserve will be speaking in the next couple of days, and the kiwi will be captive to market sentiment, Jones said. Chairman Ben Bernanke’s testimony to Congress on the budget will be the highlight of the Fed speakers.

Still, Jones says surging commodity prices will keep some latent support for the kiwi, offsetting any losses it faces against the greenback.

Last week, the ANZ Commodity Price Index reported a new record high in January, while the price of dairy products extended gains to two-and-a-half-year highs on Fonterra Cooperative Group’s online trading platform as supply issues push up global food prices. Though that’s caused unrest in some nations with high unemployment, such as Africa’s Tunisia and the Middle East’s Egypt, it’s prompted strong support for currencies in the so-called CABN (Canada, Australia, Brazil and New Zealand) currencies, due to their production of food commodities.

Darren Gibbs, chief economist at Deutsche Bank NZ, said high commodity prices haven’t “converted into strong economic performance” and aren’t a “strong case for the kiwi to go up.”

With the Reserve Bank of New Zealand expected to hold the official cash rate at 3% until the tail end of the year, “it all adds pressure for a slightly weaker currency,” Gibbs said. “The drivers will be a hangover from last week.”

Traders expect Governor Alan Bollard will lift the OCR by 57 basis points in the coming 12 months, according to the Overnight Index Swap curve.

With the Reserve Bank of Australia pegged to lift the overnight target cash rate by 41 basis points over the same period, keeping its yield advantage of New Zealand, the kiwi isn’t expected to claw back much ground, even as the so-called ‘lucky country’ contends with tropical cyclones, storms, and flooding causing billions of dollars in damage.

The kiwi was little changed at 75.89 Australian cents from 75.81 cents on Friday in New York.

Chris Weston, markets strategist at IG Markets in Melbourne, said Australian employment data will be a key event this week, and “will be looked at very closely and how that feeds into the currency.”

“At the moment the market is still pricing in one rate hike by the end of the year, so need some bigger, more constructive movement for the RBA to move, and some could argue a rising employment environment would be it,” he said.

Five of eight strategists surveyed expect the kiwi will fall on a trade-weighted basis, with another two holding a downside bias, and one keeping a positive outlook. The kiwi was little changed at 68.39 on the trade-weighted index of major trading partners’ currencies from 68.41 on Friday in New York, and rose to 63.25 yen from 63 yen.

Derek Rankin, director at Rankin Treasury Advisory Ltd, said the kiwi will probably underperform against the euro and the pound sterling this week. Most of Europe’s debt restructuring has been completed and the region will have to face up to inflationary pressures in the future, he said.

The Bank of England will review monetary policy this week, and while it isn’t expected to move on interest rates or its money printing programme, it has to contend with prices rising faster than expected. The kiwi was little changed at 56.67 euro cents from 56.63 cents on Friday in New York, and slipped to 47.75 pence from 47.85 pence.

On the data radar this week will be electronic card transactions and QV house values on Wednesday, while Friday’s food price index will also be watched. Chinese New Year holidays will keep markets quiet for the start of the week, though the HSBC PMI for China on Wednesday will be monitored.

(BusinessDesk)

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