Dollar Outlook: Kiwi may decline as Reserve Bank remains on hold

The New Zealand dollar will probably continue its downward momentum this week as the Reserve Bank confirms interest rates are on hold for the remainder of the year.

The Kiwi will probably trade between 82 US cents and 84.20 cents this week, according to a BusinessDesk survey of 10 currency strategists and traders. Nine expect the currency to decline and one is picking a gain. The New Zealand dollar recently traded at 83.14 US cents.

The local currency has retreated 6 percent from its 88.35 US cent peak in July as weaker prices for major export commodities such as logs and milk weigh on expectations for future economic growth. That has pulled back the currency's advance so far this year to about 1.5 percent after the RBNZ hiked the official cash rate at four consecutive meetings. At its last meeting in July, the central bank paused its hiking cycle and Reserve Bank governor Graeme Wheeler noted the currency was too high and could be in for a significant fall. 

"This week, the RBNZ meeting will be the local highlight," Bank of New Zealand currency strategist Raiko Shareef said in a note. "We expect the bank to strike a less hawkish tone, while attempting to convince investors it remains committed to normalising the OCR. This should keep downward pressure on the New Zealand dollar."

The Reserve Bank is expected to keep its benchmark rate at 3.5 percent this Thursday, according to economists polled by Reuters. Five of the 14 expect the bank to resume its hiking cycle at its December meeting with the remainder expecting the bank will hold off until March next year. 

Other data scheduled for release in New Zealand this week includes electronic card spending for August, due out tomorrow, the August food price index on Friday and the BNZ-BusinessNZ Performance of Manufacturing Index on Thursday. The Real Estate Institute may detail its latest monthly house price data later in the week.

Elsewhere, China is scheduled to publish its latest trade balance data for August today, with inflation, loans, trade and investment data out later in the week. China is New Zealand's largest trading partner.

In Australia, the focus this week will be on August jobs data due for publication on Thursday. Australia also has home loans data and the NAB business confidence survey tomorrow and Westpac consumer confidence survey on Wednesday.

In the US, reports set for release this week include the NFIB small business index, due Tuesday; wholesale trade, due Wednesday; weekly jobless claims, due Thursday; and import and export prices, consumer sentiment, and business inventories, due Friday. Retail sales for August also will be released on Friday.

In Japan this week, revised second quarter GDP data is published today, while the minutes of the Bank of Japan's last meeting will be released tomorrow.

In Europe, traders will be eyeing the release of European industrial production data on Friday.

(BusinessDesk)