NZ Dollar Outlook: Kiwi may falter as investors mull conflicting forces
By Tina Morrison
June 16 (BusinessDesk) - The New Zealand dollar may falter this week as traders weigh the outlook for higher interest
rates as dairy prices come off the boil while economic growth continues to accelerate.
The kiwi will probably trade between 84.90 US cents and 87.50 cents this week, according to a BusinessDesk survey of 10
traders and strategists. Four predict the kiwi will remain largely unchanged, while three expect it to fall and three
say it may rise. It recently traded at 86.70 US cents.
Investors are mulling the future track of the kiwi after it spiked higher last week when the Reserve Bank affirmed its
commitment to rising interest rates even as bank officials said the currency should decline to reflect softer commodity
prices. While Thursday's release of first quarter growth data is likely to feed into sentiment of a strong economy, the
fortnightly dairy auction on Wednesday will probably show commodity prices continue to soften. Traders will be eyeing
any subtle changes from the Federal Reserve on Thursday as they mull the outlook for rising interest rates in the
world's largest economy.
"There's a lot of conflicting forces on the New Zealand dollar at the moment," said Bancorp Treasury Services client
advisor Peter Cavanaugh. "The market is still torn. Volatility might be low globally but we have got our own peculiar
little issues here."
In New Zealand this week, the GDP data will probably show the economy grew 1.2 percent in the first three months of the
year, from a 0.9 percent pace in the fourth quarter of 2013, according to economists polled by Reuters. That would mark
the fifth quarter with growth of 1 percent or above in the past six years.
Meantime on Wednesday, the country will probably post a $1.2 billion first quarter current account surplus, from $1.4
billion in the fourth quarter, which could push the annual deficit to 2.8 percent of GDP, the first time it has been
below 3 percent since late 2011.
Traders will be eyeing Fonterra Cooperative Group's fortnightly GlobalDairyTrade auction early Wednesday morning which
may show prices fell for a ninth straight sale. Dairy prices have fallen 26 percent since February and the decline in
commodity prices has been highlighted by the Reserve Bank as a reason the kiwi should be moving down.
On Friday, the latest ANZ-Roy Morgan monthly consumer confidence report is scheduled for release and will be watched for
signs of softness falling interest rate rises.
Elsewhere, traders will be eyeing tomorrow's release of the Reserve Bank of Australia's minutes to its last meeting. The
bank is probably keeping the Aussie in its sights given it has risen 1.6 percent against the greenback so far this
month.
In the US, the Federal Reserve is expected to continue tapering its asset purchases at a steady pace following its
latest meeting and traders will be looking for indications of when interest rates may start rising. The US also has data
on inflation, industrial production and housing.
The increasing violence in Iraq will also be on the radar this week on concern about future oil supply from OPEC's
second largest producer, said Bancorp's Cavanaugh. While it doesn't appear to be a major threat at the moment, it could
flare up, he said.
(BusinessDesk)