NZ dollar heads for 1% weekly gain on strong local economy, low US rates
By Suze Metherell
June 20 (BusinessDesk) - The New Zealand dollar is heading for a 1 percent gain against the greenback this week, remaining at an elevated level after government figures showed strong local economic growth and the Federal Reserve signalled US rates will stay lower for longer.
The kiwi traded at 87.20 US cents at 5pm in Wellington up from 87.07 cents at 8am and 87.13 cents yesterday. The trade-weighted index slipped to 81.04 from 81.09 yesterday. The local currency has advanced week from 86.31 US cents last Friday in New York and is heading for a 0.5 percent weekly gain from 80.65 on the TWI, having reached a post-float record of 81.29.
Government data yesterday showed New Zealand's gross domestic product grew 3.3 percent in the year ended March 31, ahead of a forecast 3.1 percent and supporting the central bank’s view that it must press on with interest rate increases to keep inflation at bay. In contrast, the Federal Reserve revised its forecast for US economic growth in 2014 to between 2.1 percent and 2.3 percent, from an earlier forecast of around 2.8 percent to 3 percent, and lowered its projections for long-term interest rates by about 25 basis points. Offsetting the lower long-term rates, the Fed increased its short-term rate hike expectations for 2015 and 2016 and reduced its monthly bond-buying programme.
"By and large the economic fundamentals remain strong for New Zealand, but I still think we need to be mindful of the dizzy heights we're at, and when we look at the charts historically it hasn't been sustained at these dizzy heights," said Mark Johnson, senior dealer at OMF. "It's up on its highs, and maybe that is to do with squaring it off for the end of the week."
The local currency was little changed after New Zealand consumer confidence rebounded from a six-month low in June, supported by a strong economy, with the ANZ-Roy Morgan consumer confidence index rising to 131.9 from 127.6 in May. A reading above 100 indicates optimists outnumber pessimists.
"It will stay well supported around this 87 cents mark for the moment," Johnson said. Next week "87.80 US cents will be the next resistance level, so we've got a bit of scope to move higher so the expected range is 87 cents to 87.80."
The kiwi was little changed at 51.14 British pence at 5pm, from 51.10 pence this morning, and down from 51.28 pence yesterday, and traded at 88.79 yen from 88.77 yen at 8am and 88.81 yen yesterday. It was almost unchanged at 92.64 Australian cents, from 92.65 cents this morning and 92.64 yesterday and traded at 63.99 euro cents, from 64 cents at 8 am and 64.10 cents yesterday.