NZ Dollar Outlook: Kiwi at mercy of political tensions, global growth
By Tina Morrison
March 3 (BusinessDesk) – The New Zealand dollar is likely to be driven by escalating tensions between Ukraine and Russia in the next few days. Should the dispute stabilise, attention will turn to the performance of the Chinese and US economies later in the week.
The kiwi may trade between 81.80 US cents and 85 cents this week, according to a BusinessDesk survey of 11 traders and strategists. Five expect the local currency to decline, three expect it to advance while three say it will likely be little changed. The New Zealand dollar recently bought 83.58 US cents, from 83.54 cents at 8am and 83.92 cents on Friday in Wellington.
Investors are wary of escalating tensions in the Ukraine after Russian president Vladimir Putin gained parliamentary approval at the weekend to send troops into its southern neighbour following the ousting of Ukraine’s pro-Kremlin leadership. The tensions have prompted a flight to safety for investors, which may see the kiwi decline even as a buoyant local economy supports the prospects for a rise in the official cash rate next week.
“The market is obviously a bit nervous that things might escalate further” in Ukraine, said Sam Tuck, ANZ Bank New Zealand senior FX strategist. “It’s something that is definitely worth monitoring but we think it would have to escalate relatively dramatically for it to have a long-term impact or a significant down impact on the New Zealand dollar.”
Should tensions in the Ukraine be limited to a diplomatic spat, trader attention will probably refocus midweek on the global economy and new information on the outlook for China and the US, Tuck said.
Reports scheduled for release in New Zealand this week are likely to continue to underscore the economy is on a tear, with the Reserve Bank almost certain to raise interest rates on March 13.
A report today showed New Zealand’s terms of trade hit a 40-year high in the fourth quarter, while the ANZ commodity price index tomorrow should show prices hovering near record levels. High prices are likely to show little sign of easing in Wednesday’s GlobalDairyTrade auction and the rebuilding of earthquake damaged Christchurch should show through in residential data in the fourth quarter.
On Friday, state valuer Quotable Value will publish its latest data for February.
“There is nothing domestically that I think is going to change the value of the New Zealand dollar,” said ANZ’s Tuck. “The things that are going to change the value of the New Zealand dollar are all external.”
In the US, all eyes will be on a key employment report at the end of the week which is expected to show employers in the world’s largest economy added 150,000 payrolls in February, increasing January’s pace of 113,000 which was impacted by winter storms.
The Federal Reserve this week releases its Beige Book summary of regional economic conditions for January and the US also has February ISM reports on manufacturing and on-manufacturing which may have been impacted by bad weather.
“It’s the last of the weather impacted data in the US, which means weakness will be somewhat overlooked as long as it’s not massive,” Tuck said. “If it comes in strong, we are going to start to see talk about the bounce out of the US economy from the weather impacted winter. Strength in the US economy is what we need to see for the kiwi/US to go down.”
In China, traders will be monitoring statements from the National People’s Congress annual meeting starting Wednesday, where the country’s annual growth target for this year is expected to be cut from the current 7.5 percent, reducing stress on Asia’s largest economy.
Markets will be looking for comments on how leaders plan to manage the country’s economic slowdown and on the Chinese currency’s recent volatility.
In Australia, all eyes will be on the Reserve Bank of Australia’s meeting tomorrow, with interest rates expected to remain unchanged at 2.5 percent after the bank removed its easing bias at its last meeting to a more neutral stance.
Traders will be looking for the Australian Reserve Bank’s outlook for the economy when governor Glenn Stevens testifies before the House of Representatives Committee on Economics in Sydney on Friday.
Australia has a slew of data releases this week, including fourth quarter current account and GDP company profits as well as January figures for retail trade, dwelling approvals and the trade balance.
Elsewhere, central banks in Canada, Europe and England are also expected to keep interest rates unchanged at meetings this week. Economists are divided over whether the ECB will increase stimulus measures to avoid the risk of deflation. While European inflation is less than half the ECB’s goal, data last week showed inflation exceeded economists’ forecasts in February.