NZ Dollar Outlook: Kiwi may rise as RBA, dairy auction awaited

The New Zealand dollar may rise this week on the prospects that the Reserve Bank of Australia (RBA) will cut interest rates while prices are seen rising at the latest dairy auction.

The kiwi may trade between 68USc and 7USc this week, according to 11 currency analysts surveyed by BusinessDesk. Six expect a gain, two pick a decline and three say it will probably remain relatively unchanged. It recently traded at 70.12USc.

All eyes will be on whether the RBA reduces its 2% benchmark interest rate tomorrow after bets increased following weaker-than-expected Australian inflation data last week. The kiwi has jumped 3.7% against the Aussie since the data was released. Some 37 of 48 economists in a Reuters poll taken on Friday expect the RBA to keep its policy on hold, with 11 anticipating a 25 basis point reduction. Traders are more evenly split, pricing in a 55% chance of a 25 basis point cut.

"The key mover is going to be the RBA tomorrow – that's going to be very much the big noise of the week in terms of the kiwi," said Stuart Ive, OMF senior dealer, foreign exchange. "There's a raised expectation that the Australians will cut rates tomorrow."

Mr Ive says a cut by the RBA would probably push the kiwi higher against the US dollar as investors favour the kiwi over the Aussie while the kiwi is likely to remain relatively unchanged if the RBA remains on hold.

However, he says the kiwi is unlikely to break through its resistance level of about 71USc.

"We need data to really push us through and I don't think we're really going to see it this week," he said.

"On the flip side, for it to go back down lower, we need to see some US dollar strength come from somewhere, and the data that we have had out of the US still remains fairly mixed," he said. "There is a lot of uncertainty as to when the US Federal Reserve will introduce its next hike or even if it will introduce another hike."

In New Zealand this week, OMF expects prices for whole milk powder, New Zealand's key commodity export, to gain 4-5% percent at Wednesday morning's GlobalDairyTrade auction. Overall, GDT prices may gain 2-3%, which would mark the third straight auction gain.

Labour market data due on Wednesday is expected to show the unemployment rate increased to 5.5% in the March quarter, from 5.3% in the December quarter, but Mr Ive said that's unlikely to weaken the kiwi.

"Our unemployment rate is pretty well anchored on the low side, even if we saw a bit of a rebound off that very low number of 5.3%. I don't think it's going to do too much damage to the kiwi," he said.

Monthly reports due out this week include Quotable Value housing data on Wednesday, and the ANZ monthly commodity price index on Wednesday while new vehicle sales data may be released tomorrow and Barfoot & Thompson's Auckland house sales data will probably be published on Thursday.

Australia releases its government budget tomorrow and publishes March retail and trade data on Thursday. The RBA's quarterly statement on monetary policy with updated growth and inflation forecasts will be released on Friday.

In the US this week, investors will search speeches by Fed officials for clues to future interest rates. US data releases will cover manufacturing, trade and the labour market.

The US nonfarm payrolls report due Friday is expected to show the world's largest economy added about 200,000 jobs last month. However, Mr Ive said the data wasn't as key as it once was, as the focus had shifted from the labour market to inflation data.

China and the UK have bank holidays today while Japan is on holiday from Tuesday through Thursday.

(BusinessDesk)