Dollar Outlook: Kiwi may gain on expectation RBNZ reinforces hiking plans

The New Zealand dollar may gain this week amid expectations the Reserve Bank won't pull back its expectations for interest rate hikes as much as financial markets expect.

The kiwi will probably trade between 83.50 US cents and 86.50 cents this week, according to a BusinessDesk survey of nine traders and strategists. Five predict the kiwi will rise this week, while two expect it to fall and two pick it to remain largely unchanged. It recently traded at 85.05 US cents.

Reserve Bank governor Graeme Wheeler is expected to hike the official cash rate a quarter point to 3.25 percent this Thursday and traders are mulling whether he will soften his projection for future rate rises given recent weakness in milk prices, and labour and inflation data. Still, many say the market has gone too far in pulling back expectations for future hikes by 65 basis points over three years, given the strength of the local economy which is underpinned by strong migration and government spending.

"The Reserve Bank should surprise to the upside because markets have priced in too much of a downgrade to the OCR track," said Imre Speizer, senior market strategist at Westpac Banking Corp. "We think that the Reserve Bank will revise its track down a little but we are only talking in the order of 10 basis points, not in the order of 65. The market is basically saying they will take the equivalent of two full hikes out of the multi-year tightening programme. We don't agree with that. We think that they will just take a little bit out and as a result the markets will then be disappointed at the failure of the Reserve Bank to endorse its pricing and interest rates then will need to bounce on the day and that will push the kiwi/US higher."

The Monetary Policy Statement will be released at 9am on Thursday and include updated forecasts and a press conference. Governor Wheeler will appear before parliament's finance and expenditure committee at midday.

Also of interest this week, economists will be looking to tomorrow's release of first quarter manufacturing sales as they finalise their forecasts for first quarter GDP. On the same day, Finance Minister Bill English is making a speech to the Manufacturers and Exporters Association in Christchurch.

Other scheduled releases of May data include electronic card transactions and the accommodation survey on Wednesday, and on Friday the food price index and the performance of manufacturing index.

The Real Estate Institute of New Zealand may publish its latest house price figures towards the end of the week.

In Australia this week, reports are scheduled on home loans, business confidence, consumer confidence and employment. Reserve Bank of Australia governor Glenn Stevens is speaking on financial regulation in San Francisco tomorrow.

Elsewhere, Japan has reports on GDP and consumer confidence today ahead of the Bank of Japan meeting on Friday, where policy is expected to remain unchanged.

Meanwhile, China's "monthly data dump" including releases on monetary aggregates, inflation, producer prices, fixed asset investment, industrial production and retail sales is expected to show an economy growing below trend.

This week in the US, traders will be eyeing reports on retail sales, a small business survey, consumer sentiment and the producer price index.

(BusinessDesk)

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NZ Market Snapshot

Forex

Sym Price Change
USD 0.7784 -0.0049 -0.63%
AUD 0.8874 0.0001 0.01%
EUR 0.6226 0.0012 0.19%
GBP 0.4877 -0.0020 -0.41%
HKD 6.0355 -0.0391 -0.64%
JPY 87.4730 1.9060 2.23%

Commods

Commodity Price Change Time
Gold Index 1198.1 -13.300 2014-10-30T00:
Oil Brent 86.2 1.180 2014-10-30T00:
Oil Nymex 81.1 -1.180 2014-10-30T00:
Silver Index 16.4 -0.844 2014-10-30T00:

Indices

Symbol Open High Last %
NZX 50 5370.2 5405.3 5370.2 0.33%
NASDAQ 4639.4 4641.5 4566.1 1.29%
DAX 9283.4 9318.3 9114.8 2.07%
DJI 17208.8 17381.4 17195.4 1.07%
FTSE 6463.6 6553.4 6463.6 1.09%
HKSE 23913.7 24046.4 23702.0 1.25%
NI225 15817.1 16533.9 15658.2 4.83%