NZ dollar outlook: Kiwi may fall as signs of US recovery support greenback

The New Zealand dollar may decline this week as a resurgent US currency is buoyed by optimism growth is accelerating in the world's largest economy.

The kiwi recently traded at 82.77 US cents, from 82.98 cents late Friday in New York and earlier touched a seven-week low of 82.58 cents. The dollar may trade in a range of 81.50 US cents to 84 US cents this week with a downside bias, according to a BusinessDesk survey of five strategists and traders.

The US dollar index, a measure of the greenback against a basket of six major currencies, rallied through the end of last week to 83.143, its highest weekly close since July 2008, according to HiFX, and was last at 83.217.

"It's a case of the US dollar strengthening against most major currencies," says Dan Bell, currency strategist at HiFX. "Expectations are that the US economy is improving and it will outperform the rest of the world in the second half of the year."

New Zealand had been one of the most attractive currencies for speculators and that position is now reversing, he says.

Traders may push the greenback higher on signs of improving US retail sales in a report out tonight, says BNZ strategist Mike Jones. Expectations are for a 0.3 percent decline in the month although the ex-auto figure may be key as lower fuel prices in April likely boosted non-auto spending.

"The risk is we see a relatively upbeat number which could add to the support in the short term," he says.

Also in the US this week, traders will be watching a speech by the Federal Reserve Bank of Philadelphia president Charles Plosser, indications of homebuilder sentiment from the NAHB/Wells Fargo Housing Market index, April industrial production and housing start figures, jobless claims and the Empire manufacturing index.

A Wall Street Journal report on Friday said the US Federal Reserve is planning to slow its policy of quantitative easing, winding down an unprecedented $US85 billion-a-month bond-buying programme on confidence the US economy is improving.

Helped underpin currencies

Quantitative easing has helped underpin higher-yielding currencies such as the kiwi and driven stock markets higher.

Any sign of weakness in equities could be taken as a sign traders are betting QE is coming to an end as the US economy improves, says Derek Rankin of Rankin Treasury Advisory. Should stocks remain strong, it suggested US dollar gains were short term.

Locally, a report tomorrow may show New Zealand retail sales rose 0.8 percent in the first quarter from the previous three months, according to a Reuters survey of eight economists.

Results of the latest GlobalDairyTrade auction of dairy products are due out early Thursday morning, followed by the BNZ-BusinessNZ Performance of Manufacturing survey for April.

Also on Thursday, the National-led government reports its fifth Budget and is expected to say it is on track for a surplus in the 2015 financial year, despite extra spending on reconstruction from the Canterbury earthquake.

The government may detail plans to improve housing affordability by increasing supply, UBS economist Robin Clements says in a note. The national median sale price jumped 7 percent in April from a year earlier driven by increases in Auckland and Christchurch, according to Real Estate Institute figures released today.

The Budget is likely to focus investor attention on the relative strength of the New Zealand economy and push the currency higher, BNZ's Mike Jones says.

"The Budget is going to highlight the fact that New Zealand remains in a relatively enviable position as far as the rest of the world goes," he says, citing higher relative interest rates and strong commodity prices. In comparison, the US economy still has some hurdles to overcome to achieve sustainable growth.

The kiwi's slide is unlikely to be sustained and exporters will probably buy the currency at the 81.50 US cent to 82 cent level to bring home their overseas revenue, Mr Jones says.

Meanwhile, the monthly ANZ-Roy Morgan consumer confidence report will provide an update on sentiment on Friday. The measure has increased in four out of the last six months to sit at an above-average level.

(BusinessDesk)