NZ Dollar Outlook: Central bank decisions weigh on Kiwi
by Paul McBeth
Dec. 6 (BusinessDesk) – A thicket of international and local market decision points this week is weighing on sentiment towards the kiwi dollar as the week opens.
Five of eight economists and strategists in a BusinessDesk survey have a negative view on the kiwi this week after surprising weak American employment data on Friday eroded support for the greenback, and pushed up so-called risk-sensitive currencies.
On the home front, the Reserve Bank of New Zealand will deliver a monetary policy statement on Thursday, and the Reserve Bank of Australia will do the same across the Tasman tomorrow morning.
In both territories, rates are expected to remain on hold.
Currency strategists say the New Zealand dollar may fall from a 1.3% surge on Friday as speculation grows the Federal Reserve is open to printing more money in a bid to head off a stalling U.S. economy.
U.S. unemployment rose to 9.8% as America added 39,000 jobs last month, almost a quarter of the 145,000 predicted. Two are neutral on the currency this week, and one leans to the upside.
The soft labour data put the greenback under pressure, though speculation Fed chairman Ben Bernanke talked about expanding the latest US$600 billion round of asset purchases in a recorded interview set to air on Monday in the U.S. has markets ready to reverse their positions. The kiwi climbed to 76.44 U.S. cents from 76.64 cents on Friday in New York.
“U.S. data has surprised to the upside over the last couple of months and payrolls was a shocker,” said Chris Tennent-Brown, economist at ASB Institutional. “Bernanke’s done an interview that’s going to air on TV basically saying they could do more QE if they need to” and that’s helped offset some of the downbeat sentiment, he said.
Tennent-Brown predicts the kiwi will trade in a range of between 75 U.S. cents and 77 cents in what will be a “pretty quiet week.”
Most of the focus this week will go to the RBA and RBNZ decisions on monetary policy.
Both central banks are predicted to keep their benchmark rates on hold, though analysts still see the policy-makers in tightening mode.
The RBA’s target cash rate is 4.75% and the RBNZ’s official cash rate is 3%. Strategists are picking New Zealand central bank Governor Alan Bollard to start hiking rates in June, and markets are pricing in 58 basis points of increases over the next 12 months, according to the Overnight Index Swap curve.
The RBA is forecast to lift rates by 22 points. Darren Gibbs, chief economist at Deutsche Bank NZ, said people are already expecting the RBNZ to give a “dove-ish policy outlook, so that basically takes the focus to offshore.”
He predicts the kiwi will be capped at 76.60 U.S. cents, and will fall to 75 cents or slightly below. “I think where the kiwi is today is going to be top of the range,” he said.
Derek Rankin, director at Rankin Treasury Advisory Ltd., was the only analyst picking the currency to gain against the greenback this week, with last week’s U.S. labour data likely to find support from export cash-flows propping up the kiwi.
He says 77 U.S. cents will be the major point of resistance on the week, and if it breaks the kiwi may climb up to 79 cents.
Rankin predicts the kiwi will test 80 U.S. cents in the next year as more pressure goes on America to address the underlying debt issues facing the world’s biggest economy on both a Federal and State basis.
“The way to fix the debt problems is to cut spending and raise taxes, and Europe is having the debate” which will ultimately address these issues in the coming years, he said. “America hasn’t even started that discussion, and with a new Congress and beleaguered president, it’s hard to see them reaching agreement.”
Still, European sovereign debt will likely be a focus for the markets with the region’s central bank still buying bonds from peripheral nations, such as Portugal and Ireland, to keep the rot from spreading.
The Bank of England meets to review monetary policy this week, and is expected to keep its quantitative easing programme and interest rates on hold.
The kiwi slipped to 57.01 euro cents from 57.20 cents on Friday in New York, and was little changed at 48.43 pence from 48.43 pence.
Mike Jones, strategist at Bank of New Zealand, said New Zealand still has a “relatively better prognosis” than the Euro-zone, and he predicts the kiwi will gain against the euro and pound.
Data on Thursday is expected to show Australia probably added 19,000 jobs last month, according to a Reuters survey. The nation’s labour market continues to hold up amid the global downturn on the back of Chinese demand for its raw materials.
The kiwi fell to 77.04 Australian cents from 77.34 cents.
Five of eight strategists surveyed expect the kiwi will trade in a range on a trade-weighted basis, with the other three giving a negative bias.
The kiwi rose to 68.66 on the trade-weighted index from 68.56 on Friday in New York, and was little changed at 63.21 yen from 63.18 yen.
On the data radar this week, New Zealand trade, construction and electronic card spending will be watched so economists can feed them into gross domestic product forecasts.