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The New Zealand dollar may rise in volatile trading this week as investors are lured by better yields ahead of an expected hike in interest rates by the Reserve Bank and the prospect of further increases.
The kiwi may trade between 82.75 US cents and 86.35 cents this week, according to a BusinessDesk survey of 11 traders and strategists. Five expect the currency to advance while four forecast a drop and two expect little change. The kiwi recently traded at 84.65 US cents, from 84.38 cents at 8am.
Reserve Bank governor Graeme Wheeler is expected on Thursday to start on a path of continuing rate increases amid concern that inflation will accelerate as the economy gains momentum. Still, this week's hike is already priced in to markets and traders will be more focused on the outlook for future rate rises and how concerned the bank is about the elevated local currency.
"It's priced in but you may still get a spike on the day," said Tim Kelleher, ASB Bank head of institutional FX sales in New Zealand. "I'm wary about how bearish or hawkish some of the banks are on their rate forecasts."
The central bank won't want to hike rates so far as to "crush" the economy and will also be cognisant of the higher currency, Kelleher said.
Governor Wheeler will raise the official cash rate a quarter point to 2.75 percent, according to 15 of 17 economists in a Reuters survey. Of the two outsiders, one expects a 50 basis points rise this week while the other says the bank will likely wait till June to hike.
The Reserve Bank has held the cash rate at a record low 2.5 percent since March 2011, a move similar to most of the world's major central banks seeking to stimulate economic growth after the global financial crisis froze credit markets.
Given the rate hike is widely anticipated, most traders will be focused on the central bank's forecasts for future rate movements. Economists polled by Reuters expect the benchmark rate will be at 3.75 percent by March next year.
Geopolitical tensions in Ukraine and uncertainty about Chinese growth may weigh on the kiwi this week, traders said.
Also scheduled for release in New Zealand this week are February data on house prices, electronic card spending, food prices and manufacturing.
The Real Estate Institute house price index tomorrow will be watched for signs of weakness after the January data suggested price momentum faltering, perhaps reflecting restrictions on high debt mortgage lending.
Electronic card transaction data is also due tomorrow while the food price index is due Thursday. On Friday, the BNZ-BusinessNZ PMI is expected to show continued strength in manufacturing.
In Australia this week, the February NAB business confidence survey tomorrow may show continued strength after improving the previous two months although the Westpac-MI consumer sentiment survey the following day may decline on concern about the economic outlook and jobs.
Thursday's Australian employment data may show a bounce in February following weakness while the unemployment rate remains at 6 percent.
Traders will keep an eye on a speech by Reserve Bank of Australia deputy governor Philip Lowe in Sydney on demographics, productivity and innovation on Wednesday night, in a session open to media questions.
Elsewhere this week, the US February retail sales data on Thursday may lift after weakness.
Meanwhile, central banks in Japan, Korea and Indonesia are expected to keep the status quo while Thailand may cut rates by 25 basis points to support the economy amid political turmoil, according to Moody's Analytics.