Dollar Outlook: Kiwi may advance on better dairy prices

The New Zealand dollar may gain this week on speculation dairy prices could rise from their lows, while traders see little data on the horizon likely to drive the currency lower.

The kiwi may trade between 64USc and 67.60USc this week, according to a BusinessDesk survey of 10 currency advisers. Five expect the currency to gain, two say it may decline and three expect it to be little changed. The local currency recently traded at 65.38USc.

Currency traders will be eyeing Tuesday night's GlobalDairyTrade auction as a gain in NZX whole milk powder futures contracts suggests prices may rise from their lowest levels in six years, boosting optimism about the outlook for New Zealand's largest export commodity. Traders may exit short positions this week given there is little data at risk of pushing the currency lower, analysts said.

"There aren't too many top-tier data releases this week in the US or here," said Bank of New Zealand currency strategist Raiko Shareef. "The one that has potential to cause some volatility is the fortnightly dairy auction and given that futures prices suggests that we might actually get some stabilisation or even a bounce in dairy prices at that auction, that might be an excuse for investors to continue to take back the short positions that they have been building up."

Since the start of the year, the price for whole milk powder on the GlobalDairyTrade platform has fallen by almost a third to $US1590 a tonne. That has prompted Fonterra Cooperative Group to cut its forecast payout to dairy farmers to below the cost of production and prompted some economists to revise down their expectations for economic growth in the coming year.

In New Zealand this week, the latest ANZ-Roy Morgan consumer confidence survey is published on Thursday. On Friday, July data for travel and migration is due as well as credit card spending.

Elsewhere, the Reserve Bank of Australia will tomorrow publish the minutes of its last meeting, while the Federal Reserve in the US will publish the minutes of its July meeting on Wednesday.

Also in the US, Fed officials may provide further clues over whether the world's largest economy is set to raise interest rates next month with San Francisco Fed president John Williams set to speak in Jakarta, Indonesia, while Minneapolis Fed President Narayana Kocherlakota is scheduled to hold a talk in Seoul, South Korea.

The US also has data scheduled for release on housing, manufacturing, inflation and employment.

In the UK, inflation and retail sales data are due.

Meanwhile, in Japan the focus will be on second-quarter GDP and trade data.

Investors will also be keeping an eye on the Chinese currency this week after moves by China's central bank last week to allow the yuan to trade more freely, which led to a sharp decline.

Over the weekend, the chief economist at the People's Bank of China, Ma Jun, noted that in the future the yuan will probably move in both directions.

(BusinessDesk)