NZ Dollar Outlook: Kiwi likely to stay in limbo as outcome of US budget, debt talks uncertain

By Tina Morrison

Oct. 14 (BusinessDesk) – The New Zealand dollar may be little changed this week as investors await the end of a political stalemate in the US which has stalled approval of the budget and threatens to hamper the passing of a higher debt limit, threatening to send the world’s largest economy into debt default.

The local currency may trade between 81.80 US cents and 84.50 cents this week, according to a BusinessDesk survey of nine traders and strategists. Six expect the currency to remain unchanged, two predict it will decline, while one says it may gain. The kiwi recently traded at 83.17 US cents from 82.83 cents at 8am in Wellington.

US politicians met for talks at the weekend but have failed to agree on how to end a partial government shutdown and increase the nation’s borrowing authority ahead of a deadline on Thursday which may leave the US unable to pay its bills. Uncertainty is increasing the lure of so-called safe haven currencies such as the yen and the Swiss franc and lessening demand for the riskier kiwi and Aussie currencies.

“The risk averse factor at the moment is the US debt ceiling discussion,” said Imre Speizer, markets strategist at Westpac Banking Corp. “That is going to be the dominant factor for the week.”

In New Zealand, traders will be eyeing a speech by Reserve Bank deputy governor Grant Spencer at 9:30am in Auckland tomorrow about housing. A report published today by the Real Estate Institute of New Zealand showed the average house price increased 7.8 percent in September from the year earlier month, with most of the gains coming from the Auckland and Canterbury/Westland regions.

Rapidly accelerating house prices in the country’s two biggest cities has raised fears of an asset bubble emerging and prompted the Reserve Bank this month to impose restrictions on high loan-to-value ratio lending.

The Reserve Bank has signalled interest rates are set to rise from a record low 2.5 percent next year and further increases are likely should LVR limits fail to stem rapidly rising house prices. Population expansion in Auckland is outpacing housing supply while Christchurch is being rebuilt following a series of earthquakes.

Financial markets will be looking for comments about how the LVR limits may affect housing and future interest rates, Westpac’s Speizer said.

On Wednesday, the statistics department will publish a report on third quarter inflation. A Reuters poll of economists shows inflation is expected to have moved back into the Reserve Bank’s 1 to 3 percent target band, rising to an annual 1.3 percent pace in the third quarter, from 0.7 percent in the second quarter.

A bigger number will likely push the kiwi higher while a lower reading would hurt the kiwi, said Westpac’s Speizer. Still, any movement would likely be limited to a short term reaction on the day as US factors dominate, he said.

The ANZ-Roy Morgan Consumer Confidence survey for October is published on Thursday. Consumer sentiment has been drifting off over the last few months but remains just above average, Robin Clements, an economist at UBS New Zealand, said in a note.

In Australia, traders will take a close look at tomorrow’s release of the minutes from the Reserve Bank of Australia’s Oct. 1 meeting for any signal on the outlook for interest rates after the bank appeared to drop its easing bias. Financial markets are pricing in 13 basis points of rises over the next year, a turnaround from the start of the month when they expected a reduction of eight basis points.

Economic reports from China will be watched this week after a report at the weekend showed Asia’s largest economy had weaker-than-expected exports in September. Chinese inflation figures are released today, while third quarter growth, and monthly industrial production and retail sales will be published Friday.

(BusinessDesk)

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