NZ dollar outlook: kiwi may gain on signs of growth, jobs data

The New Zealand dollar may rise this week as stronger global equity and commodity markets stoke demand for the currency and an improving local economy boosts employment.

The kiwi recently traded at 85.41 US cents, from 85.32 cents on Friday in New York. It has risen 3.1 percent so far this year, or 5.2 percent on a trade-weighted basis.

The currency may trade in a range of 83.80 US cents to 86.5 cents this week and is more likely to test the top of that range, according to a BusinessDesk survey of six strategists and traders.

"The kiwi started the week on an upbeat note so it's hard to see it coming off dramatically," says Tim Kelleher, head of institutional FX sales in New Zealand for ASB Institutional. "It's not backing off unless equities turn down or commodities turn down. It's hard to see it tailing off."

In New Zealand, a report on Thursday is expected to show the unemployment rate fell to 6.8 percent in the first quarter, from 6.9 percent three months earlier, according to a Reuters survey, in line with stronger economic growth, higher commodity prices, rising house prices, increased retail spending and improving business confidence.

The Standard & Poor's too Index closed at a record on Friday and the Thomson Reuters/Jefferies CRB Commodity Index was up 1.2 percent.

"Trend-wise, we would expect it [the jobs market] to improve with the economy," says Imre Speizer, senior markets strategist at Westpac Banking Corp, which expects the jobless rate to fall to 6.8 percent. "Based on things we know that are occurring in the economy, we would expect a good number."

Ahead of the HLFS, the government statistician releases the labour cost index for the first quarter tomorrow, expected to hold at the fourth quarter's 0.5 percent pace, while the quarterly employment survey may show private sector wages rose 1 percent, after a 0.4 percent decline in the previous three months.

In Australia, the Reserve Bank is expected to keep its cash rate unchanged at 3 percent on Tuesday and traders will be focussing on the language for any clues to the timing of rate cuts. Traders are pricing in 57 basis points of rate cuts in the next 12 months, based on the Overnight Interest Swap curve.

"If they deliver an upbeat assessment, people will reassess this side of the planet," says Sam Tuck, senior manager FX at ANZ New Zealand.

Australia releases employment data for April on Thursday. Traders will also be watching the Bank of England's interest rate decision amid expectations it will keep the bank rate at 0.5 percent, rather than follow the European Central Bank in cutting rates.

China, New Zealand's biggest trading partner, releases trade figures for April on Wednesday and inflation data for April on Thursday.

On the local calendar, the central bank's Financial Stability Report, set for Wednesday, may touch on New Zealand's high dollar, which reached a post-float high 79.39 on a trade-weighted basis last month.

If governor Graeme Wheeler seems comfortable with where the currency is, "that could cause it to rally a bit", Mr Tuck says. "Everybody is expecting him to be negative about the New Zealand dollar."

(BusinessDesk)