NZ Dollar Outlook: Kiwi may decline in volatile trading

NZ Dollar Outlook: Kiwi may decline in volatile trading as RBNZ, Fed meet

By Tina Morrison

Jan. 26 (BusinessDesk) - The New Zealand dollar is headed for a volatile week marked by central bank meetings locally and in the US as investors remain wary of weak commodity prices, low inflation and amid concerns about sluggish global growth.

The kiwi may trade between 72.90 US cents and 76.50 cents this week, according to a BusinessDesk survey of seven currency strategists and traders. Four expect the currency to decline, while two say it may advance and one picks it to be little changed. It recently traded at 74.22 US cents.

The New Zealand dollar has dropped 4.6 percent the past week as investors pull back their expectations for local interest rate rises amid low inflation, declining commodity prices. Concerns about weak global growth as other central banks cut rates, the Bank of Japan continues with its record stimulus policy and after the European Central Bank announced plans for its own money-printing programme have also weighed on the kiwi.

"The New Zealand dollar has dropped like a rock. It's definitely chaos out there at the moment," said Derek Rankin, a director at Rankin Treasury Advisory. "The New Zealand dollar has been really whacked with the Australian dollar on the back of perceptions that we are going to cut interest rates. I'm not sure that that's right."

Rankin said he expects RBNZ governor Graeme Wheeler will keep the benchmark interest rate on hold at 3.5 percent and remove his tightening bias, signalling rates are likely to stay on hold for longer. The one-page statement will be released Thursday at 9am.

"It will be choppy, very choppy," Rankin said. "The market won't want to get too carried away, either way, ahead of the Reserve Bank."

New Zealand trade data for December is scheduled for release Thursday, while December building consents, migration and household claims figures are published Friday.

This week, traders will also be eyeing a statement from US Federal Reserve policy makers for clues on the timing of an interest rate increase as growth picks up in the world's largest economy. The statement is due Thursday morning New Zealand time.

"The New Zealand dollar and the Australian dollar are under pressure because of the strong US dollar," Rankin said. "Money is just pouring into US dollars so the only argument you can make at the moment is the US dollar is going to be very strong, all currencies are going to be weak against it."

The release of US fourth quarter GDP data on Friday will also be closely watched after third-quarter growth printed stronger than expected.

In Australia, the focus will be on Wednesday's fourth-quarter inflation data.

A weak inflation number may fuel speculation the Reserve Bank of Australia could cut interest rates when it meets next Tuesday, Rankin said. That could see the New Zealand dollar rise back towards 95 Australian cents, he said. It was recently trading at 94.05 Australian cents.

(BusinessDesk)

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