NZ dollar outlook: Kiwi may consolidate ahead of retail sales, G-20

The New Zealand dollar may consolidate in its recent range this week, with little important economic data and a looming G-20 meeting where the strength of major currencies may come into focus.

The kiwi recently traded at 83.60 US cents, up from 83.49 cents in late New York trading on Friday.

It may trade in a range of 82.50 cents to 85 cents this week, though traders and strategists are divided on where it will head within that range. In a BusinessDesk survey, three saw it gaining, two saw it little changed and two pick a decline.

The week will likely get off to a quiet start, with public holidays in China and Japan, which could keep some players on the sidelines.

The kiwi has recovered only some of its ground after last week's post-employment report slump and the only major data scheduled for release domestically this week is retail sales for the fourth quarter, due on Friday.

"The kiwi's momentum has certainly slowed down," says Imre Speizer, senior markets strategist at Westpac Banking Corp. Retail sales "are going to be quite a strong number and that alone should keep the kiwi elevated".

He says the currency's uptrend remains intact, though a break below 83 cents would bring that into question.

Retail sales volumes in the fourth quarter rose 1.1 percent, according to a Reuters survey, bouncing back from a 0.4 percent decline three months earlier. 

New Zealanders lifted card spending by 5.1 percent to $3.96 billion in January from the same month a year earlier, according to Paymark figures today.

Finance ministers of the Group of 20 leading economies are scheduled to meet in Moscow on Friday and comments about the relative strength of the euro and the yen last week have stoked expectations the G-20 may make some sort of exchange rate statement at the end of this week.

Japanese Finance Minister Taro Aso said last week the yen had weakened faster than expected against the greenback – comments that saw Japan's currency strengthen from the weakest since May 2010. It had weakened by some 17 percent in the past three months. The kiwi declined from its highest level against the yen in more than four years.

By contrast, the European Central Bank has said its common currency is too high.

Ahead of the G-20, the Bank of Japan is scheduled to review monetary policy on Thursday, with the market betting it will keep interest rates on hold at about zero.

"You could see some cross selling [kiwi against the yen] ahead of the Bank of Japan and G-20," says Tim Kelleher, head of institutional FX sales at ASB Institutional. "The market is speculatively long Aussie and kiwi, so you might see a bit of a drift off."

The New Zealand dollar last traded at 77.30 yen, down from as much as 79.41 yen on Feb. 6. It was at 62.45 euro cents, down from 62.50 cents in New York on Friday and up from 61.09 cents on January 30.

"It wouldn't surprise me if a little bit of uncertainty started to come back in over the European debt crisis", which has not really been a focus in recent weeks, says Dan Bell, strategist at HiFX. There could also be more volatility with leadership issues in Italy and Spain.

Helping underpin the kiwi dollar, at least in the local time zone, is demand from exporters, many of whom are in the thick of their export season.

"Exporters are low on cover and looking to get more so the kiwi should stay supported," says Derek Rankin of Rankin Treasury Advisory.

The broader backdrop in global foreign exchange markets is money looking for a high-yielding home – for example, with America printing some $US85 billion a month, he says.

"That money has to go somewhere. Interest rates are low and equity markets are hitting multi-year highs so people are a bit cautious. So you go for the high-yielding Aussie and kiwi dollars."

(BusinessDesk)