NZ Dollar Outlook: Kiwi may fall after Greek 'No' vote

NZ Dollar Outlook: Kiwi may fall as Greek 'No' vote adds downward pressure to rate outlook

By Paul McBeth

July 6 (BusinessDesk) - The New Zealand may fall this week as Greece's vote against adopting harsher austerity measures in return for another bailout stoke volatility in financial markets and adds pressure to the Reserve Bank to cut interest rates more deeply.

The kiwi may trade between 65 US cents and 69 cents this week, according to a BusinessDesk survey of eight currency advisers. Five expect the New Zealand dollar will fall this week, while three have a neutral outlook for the currency. The kiwi recently traded at 66.86 US cents, little changed from 66.93 cents at the New York close.

Greek voters spurned the extra austerity measures demanded by their European creditors to receive another bailout package, raising the prospect of the Mediterranean nation leaving the euro-zone and its shared currency. That's encouraged investors to seek 'safe haven' assets such as the greenback, which has also been on the ascendancy on the prospect of looming rate hikes by the Federal Reserve.

The Chicago Board Options Exchange's Volatility Index, known as Wall Street's 'fear gauge', spiked to a six-month high in the lead-up to the referendum, and was recently at 16.79, higher than the moving average of 14.64 this year.

The heightened volatility in financial markets comes amid signs of a slowing local economy, where a plunging global milk price has sapped firms' optimism about the growth outlook, and seen analysts raise their expectations for rate cuts by the central bank. RBNZ governor Graeme Wheeler started cutting the official cash rate last month, and traders are pricing in a 92 percent chance of a further reduction at next week's review.

"Europe will drive the rate outlook for the near-term - the markets have already taken the view that the Greece kerfuffle could be a big deal and will force the Reserve Bank to cut more," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. "Over the year we should get to 62 US cents easily - we've got a slowing economy here, the RB's cutting rates, the US is soon to hike rates, and there are global tensions from out of Europe."

Traders will focus on headlines from Europe as Greek officials meet with their European counterparts on what will result from the 'No' vote.

Locally, the New Zealand Economic Institute of Research's quarterly survey of business opinion for the June quarter will be watched tomorrow for an update on business confidence after last week's ANZ Bank Business Outlook showed growing pessimism among firms, largely off the back of a souring agricultural sector.

Other local data include June electronic card transactions and the May accommodation survey on Thursday and Friday, and the government's financial statements for the 11 months ended May 31 on Wednesday.

Minutes to the Federal Open Market Committee's June meeting on Wednesday and a speech by Fed chair Janet Yellen on Friday will attract attention for hints on the timing of higher US interest rates, while the Reserve Bank of Australia's policy review tomorrow and Australian employment data on Thursday will also be watched.

(BusinessDesk)

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