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NZ Dollar Outlook: Kiwi may fall on weak GDP

NZ Dollar Outlook: Kiwi may fall on flailing recovery, strong greenback

By Paul McBeth

Dec. 20 (BusinessDesk) – The New Zealand dollar will probably drift lower this week as expected soft third-quarter economic data puts investors off the local currency, while a stronger U.S. recovery stokes appetite for the greenback.

All seven economists and strategists surveyed by BusinessDesk are negative on the kiwi with gross domestic product in the three months ended Sept. 30 likely to show minimal, if any, growth. That comes amid a slowdown in liquidity as local trading room numbers start thinning ahead of the Christmas and New Year holidays.

New Zealand’s economy grew 0.2% in the third quarter, according to a Reuters survey of 15 economists. Financial markets have wound back expectations for a revival in economic growth in an economy that has struggled to pick up pace since emerging from recession last year. Reserve Bank Governor Alan Bollard, who has forecast third-quarter GDP at 0.3%, will keep the official cash rate unchanged until at least June 2011, according to a separate Reuters survey.

“Even if you’re an optimist, it’s (GDP) not going to be a great number,” said Darren Gibbs, chief economist at Deutsche Bank NZ. “It’s a deeply historical period which ended three months ago, but the headline number is not going to make for pleasant reading.”

Gibbs expects the kiwi to drift lower this week with 73 U.S. cents an important support level. If that gets broken, he predicts the currency will move towards 70 cents. The kiwi dropped to 73.46 cents from 74.06 on Friday in New York.

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Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney, said markets will need to see a shock in the GDP numbers on Thursday, with much of the downbeat attitude to the kiwi already priced in.

He expects the kiwi will stay under downward pressure through much of the holiday period with America’s monetary stimulus, soon to be followed by fiscal stimulus through President Barack Obama’s extension of the tax cuts, underpinning sentiment in the U.S.

Upbeat American data is expected to help stoke demand for the greenback, with the U.S. economy showing signs of reviving in recent months. This week’s ongoing employment, inflation, and manufacturing data will likely continue to the strong theme for the world’s biggest economy.

Ben Potter, research analyst at IG Markets in Melbourne, said the kiwi has been under pressure from the U.S. dollar in recent weeks which will likely continue on this week’s data. He expects the New Zealand dollar will trade between 73.20 U.S. cents and 74.25 cents this week.

“There is a reasonable bit of data out this week, with core durable goods, new home sales, existing home sales and the final GDP print for the U.S.,” he said. “There is the potential for strength among U.S. releases to continue. That could continue to weigh on the kiwi.”

European sovereign debt woes, which reignited over the weekend when Moody’s Investors Service slashed Ireland’s credit rating five notches to Baa1, is underpinning the U.S. dollar strength, and Mike Jones, strategist at Bank of New Zealand, expects this will help bolster the kiwi against the euro and pound.

The region’s “fiscal woes are starting over again, and Europe and the U.K. are coming under pressure,” Jones said. The kiwi rose to 55.82 euro cents from 55.60 cents on Friday in New York, and was little changed at 47.35 pence from 47.37 pence.

Alex Sinton, senior dealer at ANZ New Zealand, said the kiwi is on the back foot against its Australian counterpart, and that may continue when the Reserve Bank of Australia’s minutes are released tomorrow. The divergence between the two economies has helped push the kiwi to decade-lows against its neighbouring currency, and he said it may have a look at 73 Australian cents.

The kiwi dropped to 74.33 Australian cents from 74.72 cents on Friday in New York.

All seven strategists surveyed were downbeat on the kiwi against most of the crosses. The trade-weighted index of major trading partners’ currencies declined to 66.62 from 66.89 on Friday in New York, and the kiwi decreased to 67.74 yen from 62.16 yen.

Also on the local data radar this week is New Zealand’s current account for the third quarter, which is expected to show the deficit grew to 3.4% of GDP. Migration data is also out tomorrow.


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