Dollar Outlook: Kiwi may falter as investors mull conflicting forces

The New Zealand dollar may falter this week as traders weigh the outlook for higher interest rates as dairy prices come off the boil while economic growth continues to accelerate.

The kiwi will probably trade between 84.90 US cents and 87.50 cents this week, according to a BusinessDesk survey of 10 traders and strategists. Four predict the kiwi will remain largely unchanged, while three expect it to fall and three say it may rise. It recently traded at 86.70 US cents.

Investors are mulling the future track of the kiwi after it spiked higher last week when the Reserve Bank affirmed its commitment to rising interest rates even as bank officials said the currency should decline to reflect softer commodity prices. While Thursday's release of first quarter growth data is likely to feed into sentiment of a strong economy, the fortnightly dairy auction on Wednesday will probably show commodity prices continue to soften. Traders will be eyeing any subtle changes from the Federal Reserve on Thursday as they mull the outlook for rising interest rates in the world's largest economy.

"There's a lot of conflicting forces on the New Zealand dollar at the moment," said Bancorp Treasury Services client advisor Peter Cavanaugh. "The market is still torn. Volatility might be low globally but we have got our own peculiar little issues here."

In New Zealand this week, the GDP data will probably show the economy grew 1.2 percent in the first three months of the year, from a 0.9 percent pace in the fourth quarter of 2013, according to economists polled by Reuters. That would mark the fifth quarter with growth of 1 percent or above in the past six years.

Meantime on Wednesday, the country will probably post a $1.2 billion first quarter current account surplus, from $1.4 billion in the fourth quarter, which could push the annual deficit to 2.8 percent of GDP, the first time it has been below 3 percent since late 2011.

Traders will be eyeing Fonterra Cooperative Group's fortnightly GlobalDairyTrade auction early Wednesday morning which may show prices fell for a ninth straight sale. Dairy prices have fallen 26 percent since February and the decline in commodity prices has been highlighted by the Reserve Bank as a reason the kiwi should be moving down.

On Friday, the latest ANZ-Roy Morgan monthly consumer confidence report is scheduled for release and will be watched for signs of softness falling interest rate rises.

Elsewhere, traders will be eyeing tomorrow's release of the Reserve Bank of Australia's minutes to its last meeting. The bank is probably keeping the Aussie in its sights given it has risen 1.6 percent against the greenback so far this month.

In the US, the Federal Reserve is expected to continue tapering its asset purchases at a steady pace following its latest meeting and traders will be looking for indications of when interest rates may start rising. The US also has data on inflation, industrial production and housing.

The increasing violence in Iraq will also be on the radar this week on concern about future oil supply from OPEC's second largest producer, said Bancorp's Cavanaugh. While it doesn't appear to be a major threat at the moment, it could flare up, he said.

(BusinessDesk)

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NZ Market Snapshot

Forex

Sym Price Change
USD 0.7878 -0.0004 -0.05%
AUD 0.9091 0.0005 0.06%
EUR 0.6356 -0.0003 -0.05%
GBP 0.5032 0.0001 0.02%
HKD 6.1123 -0.0013 -0.02%
JPY 92.8410 0.0020 0.00%

Commods

Commodity Price Change Time
Gold Index 1201.1 7.690 2014-11-21T00:
Oil Brent 78.6 -0.120 2014-11-21T00:
Oil Nymex 76.5 0.710 2014-11-21T00:
Silver Index 16.4 0.260 2014-11-21T00:

Indices

Symbol Open High Last %
NZX 50 5526.9 5526.9 5526.9 -0.56%
NASDAQ 4751.0 4751.6 4701.9 0.24%
DAX 9521.2 9736.1 9484.0 2.62%
DJI 17721.0 17894.8 17719.0 0.51%
FTSE 6678.9 6773.1 6678.9 1.08%
HKSE 23353.7 23508.0 23349.6 0.37%
NI225 17285.7 17381.6 17300.9 0.33%