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NZ dollar outlook: kiwi may fall this week as global growth dims

Record bets last week on further gains in the kiwi thwarted.

Wed, 11 Jul 2018

The New Zealand dollar may fall this week as signs of weaker global growth wrong-foot record bets on further gains in the kiwi.

It recently traded at 84.05 US cents from 84.19 cents in New York on Friday. The trade-weighted index fell to 77.79 from 77.91.

The kiwi may hover in a range of 83.30 US cents to 85 cents this week, according to a BusinessDesk survey, and is more likely to test the lower end of that range.

Net long positions on the New Zealand dollar, or bets the currency is going to rise, reached a record level last week, according to Commodity Futures Trading Commission data.

Demand for the kiwi is hardly surprising, with the local economy growing at almost twice the pace the central bank had forecast, benign inflation and relatively high interest rates. But the blowout in net longs suggests a turn in the kiwi, strategists say.

"When positioning gets to these sorts of extreme levels it tends to be a signal of a turnaround," Mike Jones, strategist at Bank of New Zealand, says. "It raises the risk those positions have to be squared up."

The kiwi has retreated from recent highs in the past week after China reported slower-than-expected economic growth and the International Monetary Fund lowered its forecast for global growth this year to 3.3 percent from a 3.5 percent forecast in January.

In a relatively heavy week for economic news, sales and prices of US homes and PMI are out on Tuesday, the Reserve Bank of New Zealand interest rate review, Australian inflation figures and US durable goods on Wednesday, UK gross domestic product on Thursday and on Friday, New Zealand's trade balance, the Bank of Japan's decision and US GDP data are due.

"The euphoria that started the year has been replaced by, at best, scepticism about the pace of the global recovery," says Peter Cavanaugh, senior client adviser at Bancorp Treasury Services. "Speculators are already very long kiwi, so the chances are it would take something extra special for it to get even longer."

RBNZ governor Graeme Wheeler is expected to hold the official cash rate at 2.5 percent on Wednesday and may take the opportunity at the six-weekly review to rail against the strength of the kiwi. Yet the high currency is helping keep a lid on inflation, which threatens to stir as the housing market heats up.

The kiwi has edged up to 84.02 yen from 83.77 yen in New York on Friday. The Group of 20 nations omitted any specific mention of Japan's efforts to weaken its currency in its official statement after the weekend's meeting.

Derek Rankin, of Rankin Treasury Advisory, says the kiwi's weakness "is still relatively temporary" because of the weight of money looking for a home as the Federal Reserve and Bank of Japan print billions of dollars of their currencies.

"That's ultimately supportive for the Oz dollar and the kiwi – they're hardly collapsing." 

Traders will also be keeping a watchful eye on US first-quarter earnings as a gauge of the strength of the American economy.

US stock benchmarks sold off last week and companies set to report this week include Apple, Caterpillar, DuPont, United Technologies, Boeing, Procter & Gamble, Exxon Mobil and Chevron.


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NZ dollar outlook: kiwi may fall this week as global growth dims