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NZ Dollar Outlook: Kiwi may range-trade as fiscal cliff eyed

NZ Dollar Outlook: Kiwi may trade in recent range as fiscal cliff, stocks eyed

Nov. 19 (BusinessDesk) – The New Zealand dollar may trade within its range of the past two months in a week shortened by Thanksgiving in the US as traders ponder the chances of America finding consensus over the fiscal cliff and as the currency takes its lead from equity markets.

The New Zealand dollar traded recently at 81.21 US cents, little changed from Friday in New York. That’s closer to the bottom of the range seen this week in a BusinessDesk survey of 80.50 US cents to 82.50 cents.

While US Treasury Secretary Timothy Geithner reported “a good meeting” between President Barack Obama and congressional leaders with the possibility of a deal within weeks, market participants are recalling the protracted talks over the US debt ceiling a year ago and the resultant downgrade of the sovereign credit rating.

“The fiscal cliff discussions are going to bounce around,” said Imre Speizer, senior markets strategist at Westpac Banking Corp. “It’s too early to suggest resolution on that one.”

If US political leaders can’t compromise, the world’s biggest economy could contract early in the New Year as consumers and businesses slam on their spending brakes at the same time as taxes rise and the government is forced to cut its programmes. Obama is seeking to head off a combined US$607 billion in automatic tax increases and spending cuts. He must also negotiate an increase in the federal debt ceiling that is expected to be breached by year end.

Economic figures out of New Zealand today painted a more benign picture of the domestic economy. The BNZ-Business New Zealand performance of services index rose 7.5 points to 57.4, seasonally adjusted, in October in its biggest monthly gain since the survey began in 2007, raising questions about whether it was a rogue number. It follows weak retail sales figures and a jump in third-quarter unemployment.

The producers price index showed input and output prices both fell in the third quarter, confirming last month’s inflation figures showing the consumer price index rose a smaller-than-expected 0.3 percent in the third quarter. The annual pace of 0.8 percent was below the central bank’s 1 percent-to-3 percent target band.

Traders see a 27 percent chance of the Reserve Bank cutting the official cash rate from a record low 2.5 percent on Dec. 6. Before then, the Reserve Bank of Australia releases the minutes of its last policy meeting tomorrow and traders will be watching for any word a rate cut next month is on the cards.

Alex Sinton, senior dealer at ANZ New Zealand, said the market is also looking for any word on capital spending in Australia’s resources sector, amid concern it may have peaked.

The New Zealand dollar recently traded at 78.43 Australian cents, little changed from 78.45 cents on Friday in New York and down from as high as 80.81 cents on Oct. 2.

Sinton says there’s a chance the kiwi ends the week higher if traders close off some of their positions before the long US weekend. Below 80.50 US cents “there is a lot of underlying demand,” he said.

Investors will get fresh clues about demand for the exports of both countries down under on Thursday with the release of China’s HSBC Flash PMI for November. The PMI was 47.4 in the previous month, a reading that signals contraction.

Derek Rankin, director at Rankin Treasury Advisory, says the direction of US equities will be a big driver of growth-linked currencies such as the kiwi and Australian dollars this week. While the Dow Jones Industrial Average managed a 0.4 percent gain on Friday the benchmark index has fallen 7 percent in the past month.

“The share market is the driver here,” he said.


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