NZ Dollar Outlook: Kiwi may fall amid dairy weakness

NZ Dollar Outlook: Kiwi may fall amid dairy weakness, greenback strength

By Tina Morrison

June 15 (BusinessDesk) - The New Zealand dollar, which hit a five-year low at the weekend, may fall further this week amid concern prices may remain weak in the latest dairy auction and on expectations improving US data will boost the prospects for the Federal Reserve to hike interest rates.

The kiwi may trade between 68 US cents and 71.80 cents this week, according to a BusinessDesk survey of 12 currency advisers. Seven said the currency would probably fall, three picked it to move higher while two bet it would remain largely unchanged. It was recently trading at 69.76 US cents.

The local currency fell sharply last week after the Reserve Bank cut the benchmark interest rate by 25 basis points to 3.25 percent, surprising some in the market who had expected rates to remain on hold for longer. Traders will be looking to this week's GlobalDairyTrade auction after the RBNZ highlighted concern about weak dairy prices, and further declines could prompt some to forecast more aggressive future rate cuts. Meanwhile, a strengthening US economy is likely to bolster the case for the Fed to hike rates in September.

"For US dollar reasons the US dollar will go up and for kiwi reasons the kiwi side will go down, so you have got a double whammy going on at the moment," said Imre Speizer, Westpac Banking Corp senior market strategist in New Zealand.

"Dairy now is much more important than it was a week ago because the RBNZ has suddenly flagged it as the major thing that drove them into cutting," Speizer said. "If we get another fall, I think the market will price in even more (cuts) and the kiwi will respond to that. That's going to be the main theme - do they stop at 50 (basis points), or do they go 75 or 100 - well the answer to that will be whatever dairy does."

The outcome of the latest dairy auction will be published early Wednesday morning New Zealand time.

New Zealand also has first-quarter balance of payments data on Wednesday and gross domestic product on Thursday. Westpac expects New Zealand's economy expanded 0.6 percent in the first quarter, reflecting temporary softness in agriculture and mining, offset by robust growth elsewhere.

The Reserve Bank publishes first-quarter household balance sheet data on Thursday, while on Friday the ANZ-Roy Morgan consumer confidence survey is scheduled for release.

Meanwhile, in the US the focus will be on this week's meeting of Federal Reserve policy makers, with chair Janet Yellen scheduled to host a press conference detailing the Fed's views following the decision early Thursday morning New Zealand time.

The latest US economic data points to a rebound in the second quarter after a weak first quarter and comments from the Fed along those lines will give financial markets comfort around a September rate hike, said Westpac's Speizer.

This week, the US has further economic updates, including the Empire State manufacturing survey, housing market index and industrial production, due today; housing starts, due Tuesday; consumer price index, weekly jobless claims, Philadelphia Fed business outlook survey, and leading indicators, due Thursday; and Atlanta Fed business inflation expectations, due Friday.

In Australia, Reserve Bank of Australia assistant governor (economic) Christopher Kent is scheduled to speak in Canberra today, while assistant governor financial markets Guy Debelle is due to speak in Sydney tomorrow. The RBA minutes to its last meeting will also be published tomorrow.

Elsewhere, the Bank of England will release the minutes from its June policy meeting on Wednesday, while Bank of Japan policymakers begin their two-day meeting on Thursday.

Greece continues to negotiate with its creditors, ahead of debt payments due at the end of this month. In Brussels today, European Central Bank president Mario Draghi is scheduled to testify before the European Parliament’s economic and monetary affairs committee, with comments on the bank’s quantitative easing programme especially high on the radar of investors. Also, the Eurogroup of euro-zone finance ministers gathers on June 18.

(BusinessDesk)

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