Outlook: Kiwi may drop amid new Chinese data, Greek stalemate

BUSINESSDESK: The New Zealand dollar may extend its slide this week as investors digest weak data from China, the nation’s second-biggest export market, and the prospects for fresh elections in Greece.

The kiwi recently traded at 77.89 US cents, down from 78.29 cents at 8am.

That is at the lower end of this week's trading range of 77 cents to 80 cents, according to a BusinessDesk survey of six analysts.

Of the analysts surveyed, four predict the kiwi will finish the week lower and two higher.

The currency was little changed after China announced at the weekend that it had cut the reserve requirement ratio for banks by 50 basis points to 20% after a string of weak data pointed to a slowdown in growth.

The move may help underpin lending and economic activity.

On Friday, figures showed China’s industrial output growth slowed to 9.3% in April, missing estimates. Import gains also stalled in April.

"The whole China story is not going away and the market is feeling more relaxed about a hard landing - the People's Bank of China stands ready to do anything," said Kymberly Martin, market strategist at Bank of New Zealand.

The political stalemate continues in Greece, where political parties have failed to agree to form a government and the risks of the Mediterranean nation leaving the euro continue to rise.

On Sunday, leaders from the country's three biggest parties were unable to reach an agreement after the nation's biggest anti-bailout party Syriza, again ruled out joining a unity government.

"Even though there is quite a raft of economic data out this week it will be playing second fiddle to Greek concerns," Peter Cavanaugh, senior client adviser at Bancorp, said.

European industrial production figures are due out later today, followed by gross domestic product tomorrow and inflation, trade balance and unemployment on Wednesday.

Euro zone finance ministers will meet today in Brussels, followed by a meeting of all European Union finance ministers the next day.

On Wednesday, German Chancellor Angela Merkel is set to meet Nicolas Sarkozy's successor as French leader, Francois Hollande, who is already distancing himself from the region’s austerity push.

Investors will be eyeing the sale of Italian, Spanish and French government bonds this week to see whether the region’s debt crisis is continuing to worsen.

Italy will sell notes today, followed by Spanish and French debt sales on Thursday.

It will be the first French auction since Mr Hollande defeated Mr Sarkozy.

Mr Martin said" "Relatively speaking the New Zealand dollar/euro cross will hold up better than the New Zealand dollar against the US dollar."

In the US, the world's largest economy, investors will be looking to the minutes of the latest Federal Open Market Committee meeting, released on Wednesday.

Data out this week includes consumer prices and retail sales later tomorrow, followed by housing and industrial output on Wednesday.

"We could find some of the US data is reasonable again because it has been a bit patchy and that will add to the kiwi’s weakness," said Tim Kelleher, head of institutional FX Sales NZ ASB Institutional.

America's earnings season continues with Home Depot, Target and Wal-Mart set to release their results this week.

In New Zealand's largest export market, Australia, its Reserve Bank is due to release the minutes from its May meeting tomorrow.

The RBA slashed half a percentage point from its benchmark interest rate to 3.75%, citing a persistently high currency and slowing output growth.

New Zealand's first-quarter retail trade data released today showed the total volume of spending fell a seasonally adjusted 1.5% to about $17 billion, says Statistics New Zealand.

It was led by a decline in spending on supermarket and grocery items after a spend-up during the Rugby World Cup.

The BNZ-BusinessNZ performance of services index also out today showed the country's service sector picked up in pace last month, rising 2.5 points to 56.7.

That is the highest level since November and the second highest since the survey began in April 2007.

Fonterra's GlobalDairyTrade auction takes place on Wednesday morning, while the ANZ Job Advertisements for April and March's Producer Price Index from Statistics NZ are released on Thursday.