NZ dollar outlook: Kiwi may rise as central banks meet

Weak US employment data stokes expectations the Federal Reserve will loosen monetary policy further.

BUSINESSDESK: The New Zealand dollar rise this week after weak US employment data stoked expectations the Federal Reserve will loosen its monetary policy further, while at home Reserve Bank governor Alan Bollard is expected to keep interest rates unchanged.

The kiwi was recently at 81.04 US cents, down from 81.21 cents at the close of trading in New York. That is right in the middle of this week's predicted trading range of 80 US cents to 82 cents, according to a BusinessDesk survey of five analysts.

Four of the five analysts predict the kiwi will finish the week higher and one lower.

In the US, the world's largest economy, non-farm payrolls showed employers added 96,000 jobs in August, down from a 141,000 gain in July. That has boosted speculation the Fed will be forced to act to stimulate growth, announcing a third round of asset purchases on Thursday.

"Thursday will be the biggie. How much will the Fed throw at it?" says Imre Speizer, market strategist at Westpac Banking Corp. "There is a strong chance that they will do something aggressive. It should be market supportive."

The median forecast from 59 economists polled by Reuters gave a 60% chance Fed chairman Ben Bernanke will announce QE3 on Thursday at the conclusion of the two-day FOMC meeting this week.

The Fed has already spent US$2.3 trillion buying assets – mortgages and government securities – in an effort to make it easier for businesses and individuals to borrow money. The impact has been muted.

Data out of the US this week includes international trade numbers, the consumer price index and retail sales.

Local traders will be looking to Dr Bollard's final monetary policy statement on Thursday, before he hands the job over to former World Bank executive Graeme Wheeler.

Dr Bollard is expected to keep the official cash rate at 2.5%, according to a Reuters' survey of 18 economists. The rate has not budged since March last year from the lowest since it was introduced in March 1999.

"Bollard will be fairly stern," says Tim Kelleher, head of institutional FX sales NZ ASB Institutional. "Bollard will be as the RBA was, slightly grumpy about the level of the currency – not that they are going to do anything."

In China, New Zealand's second-largest export market, industrial output grew at its slowest pace in three years.

Retail sales rose in line with expectations, while producer prices fell for a sixth month, according to official figures released over the weekend. That has put pressure on the People's Bank of China to cut interest rates.

"The data was talked up as weaker but it was almost in line with expectations," says Mike Jones, market strategist at Bank of New Zealand. "Stimulus is starting to attract some attention and that's a positive for markets."

In Europe, the German constitutional court will meet on Wednesday to rule on the nation's participation in the proposed EU rescue fund.

Last week, European Central Bank president Mario Draghi unveiled a plan for the central bank to buy unlimited amounts of government debt maturing in one to three years.

"A no vote for the Germans could see the euro and risk sentiment dive eventually," Mr Jones says. "It should go to plan."

The Dutch go to the polls on Wednesday, with the latest polls suggesting the popularity of the anti-Europe Socialists is fading.

Australia, New Zealand's largest export partner, will release its NAB consumer confidence figures tomorrow, followed by dwelling statistics on Wednesday.

Last week, the Reserve Bank kept its target cash rate on hold at 3.5% and said capital spending in the resources sector is keeping the economy growing.

In New Zealand, the economic survey of manufacturing for the June quarter from Statistics NZ was released today, showing sales volumes rose 0.3%, seasonally adjusted, led by meat and dairy products, transport equipment and machinery.

UBS New Zealand economist Robin Clements says manufacturing sales volumes met his expectations and put the economy on track for growth of 0.5% for the second quarter.

Electronic card transactions for August are released tomorrow and the accommodation survey for July on Wednesday and the food price index on Friday.

The latest QV monthly house statistics for August are due out tomorrow, followed by the Business NZ-Bank of New Zealand performance manufacturing index on Thursday and the ANZ-Roy Morgan Consumer Confidence survey on Friday.