Dollar Outlook: Kiwi may decline as greenback strengthens after US employment data

The New Zealand dollar may decline after failing to make a break through 88 US cents in the past two weeks and in the absence of local data to push it higher as the US dollar strengthens.

The kiwi may trade between 86.40 US cents and 88.50 cents this week, according to a BusinessDesk survey of 10 traders and strategists. Six predict the kiwi will fall this week, while two expect it to gain and two say it will likely remain largely unchanged. It recently traded at 87.17 US cents.

The New Zealand dollar has gained more than 5 cents against the US dollar this year as a buoyant local economy pushes interest rates higher. However in the past fortnight the kiwi has failed to push through 88 US cents after touching a three-year high of 87.94 cents on June 27, within sights of its August 2011 post-float high of 88.40 cents. Optimism has faded about further upside for the kiwi this week after a US employment report beat expectations last week, boosting sentiment about a revival in the world's largest economy.

"Kiwi has failed to break above 88 over the past two weeks and so there is a little bit of momentum lost on that uptrend and there doesn't seem to be much on the data calendar that could really provoke potentially a test of 88, let alone a test of 88.40," said Bank of New Zealand currency strategist Raiko Shareef. "The data in New Zealand does seem to be slowing a little. The other side of the coin is the fact that last week's US employment report was very positive. That's really given the US dollar bulls a little bit more to go on having been pretty discouraged over the past month or so."

In New Zealand this week, traders will be eyeing the New Zealand Institute of Economic Research second quarter survey of business opinion, scheduled for release tomorrow. The measure will probably hold up as it doesn't cover the rural sector and therefore won't capture recent weakness in the terms of trade, said the BNZ's Shareef. As it isn't a leading indicator, its impact on the currency will probably be limited, he said.

Reserve Bank governor Graeme Wheeler is to give an off-the-record speech at a business breakfast in Auckland tomorrow and deputy governor John McDermott is scheduled to speak to the Wellington Employers' Chamber of Commerce on Wednesday, considering the concept of potential output and its place in the monetary policy framework of an inflation targeting central bank. McDermott will also discuss broad drivers of growth in potential output and the best contribution that monetary policy can make towards strong growth.

New Zealand data out this week includes June electronic card transactions on Wednesday and the food price index on Friday.

On Thursday, the BNZ-Business NZ Performance of Manufacturing Index for June is scheduled for release. The PMI declined for a second consecutive month in May although it remained in expansion.

Elsewhere, the Federal Reserve publishes the minutes of its latest meeting on Wednesday, while the Bank of England is expected to keep its policy unchanged at a meeting on Thursday.

Australia has the NAB business confidence report for June tomorrow and the release of employment data on Thursday.

In China, reports on inflation and the producer price index for June are scheduled for release on Wednesday, while monetary aggregates and foreign trade for June are due for publication Thursday.

(BusinessDesk)