Dollar Outlook Kiwi at the whim of US gyrations this week as investors weigh interest rate track

The New Zealand dollar may be at the whim of the US dollar this week as a plethora of Federal Reserve officials discuss their views and a range of economic reports provide an insight into how the world's largest economy is tracking.

The local currency may trade between 85.30 US cents and 87.80 cents in the short week leading up to Easter, according to a BusinessDesk survey of 10 traders and strategists. Four predict the kiwi will fall this week, while one expects it to gain and five see it largely unchanged. It recently traded at 86.75 US cents.

First-quarter inflation is the main highlight on the local calendar this week but strategists say that is unlikely to change sentiment about the strong domestic economy. Meantime in the US, all eyes will be on new Fed chair Janet Yellen and her fellow policymakers as traders weigh bets on the track of US interest rates after being told they had read too much into the Fed's future plans to hike rates.

"Markets have re-rated the US dollar quite significantly lower last week and US 10-year interest rate projections have come in lower as well and where that goes matters hugely for currencies," said Sam Tuck, ANZ Bank New Zealand senior foreign exchange strategist. "Markets are going to focus very closely on what the Fed has to say."

Yellen is scheduled to present her opening remarks by video conference to the Financial Markets Conference in Georgia tomorrow and deliver a speech on monetary policy and the economic recovery on Wednesday in New York. This will be her first public appearance since the release last week of minutes from the latest Federal Open Market Committee which damped down expectations about a pending increase in US interest rates.

A raft of other Fed officials is also scheduled to speak this week. Other clues on the state of the US economy will come in the form of reports on retail sales and business inventories, due today; the consumer price index and the Empire State manufacturing survey, due Tuesday; industrial production and Atlanta Fed business inflation expectations, due Wednesday; weekly jobless claims and the Philadelphia Fed survey, due Thursday; and leading indicators, due Friday.

The next Fed Beige Book, a respected source of anecdotal information on the current state of the economy across the US, is due on Wednesday. The coming days will provide an update on the US real estate industry too with the housing market index, due Tuesday, and housing starts, due Wednesday.

"With that raft of Fed speakers and the regional surveys I think that will lead to kiwi being capped or slightly negative," said ANZ's Tuck. "Whilst any of those individual releases wouldn't necessarily mean we should focus on US dollars this week, the combination of them is probably going to give us quite a lot of US dollar information so that will drive global currencies."

In New Zealand, data scheduled for publication on Wednesday is expected to show annual inflation rose at a 1.7 percent rate in the first quarter, the fastest pace since the fourth quarter of 2011.

"It will probably have a supportive role for the New Zealand dollar," said ANZ's Tuck. "It just continues the theme that there is nothing really in the New Zealand local data that would suggest any kiwi weakness so that allows us to shift the focus for direction to offshore markets and offshore data."

On Thursday, traders will be watching if the Reserve Bank of New Zealand's March 13 interest rate hike has dented strong sentiment in the ANZ-Roy Morgan Consumer Confidence survey. On Wednesday, analysts will be eyeing the GlobalDairyTrade auction to see if prices continued to soften.

Meantime, tomorrow's release of the Australian Reserve Bank minutes from its last meeting will probably continue to show the central bank is monitoring the rebalancing of the economy away from mining investment. Australian assistant governor Guy Debelle is scheduled to speak on the Australian bond market on Tuesday.

Traders are expecting Chinese data on Wednesday to show continued moderation in Asia's largest economy. ANZ expects China's first quarter GDP eased to a 7.2 percent annual pace from its previous pace of 7.7 percent and the government's full-year target of 7.5 percent. Chinese data is also scheduled for release on March fixed asset investment, industrial production and retail sales.

In the UK, releases this week on employment and inflation will probably show a continued revival in the economy, supporting sterling, Tuck said.

(BusinessDesk)