Kiwi dollar following global cues

US corporate earnings and domestic business confidence data will be the major factors determining the direction of the New Zealand dollar this week, but the market will also be eyeing today's Reserve Bank of Australia rate decision and tomorrow's Fonterra milk powder auction for cues.

Last week the NZ dollar traded in a US70.80c to US72.50c range following several months of strong gains. Yesterday it closed at US72.01c, having hit a low of US71.40c during the local session on comments from Finance Minister Bill English that it was higher than would be expected at this point in the economic cycle.

BNZ Capital economists said the global outlook would be the key to the local currency's near-term fortunes, noting investors were now starting to question whether the optimism that has driven the spectacular equity market gains is well founded. The US corporate reporting season that begins this week will provide some hard evidence.

BNZ also noted increasing pressure to arrest the weakness in the US dollar which has been the major driver of gains by other currencies including the kiwi.

Westpac senior markets strategist Imre Speizer said third-quarter Business Opinion data out today should follow the improved tone of National Bank's business confidence survey and provide support for the kiwi. He also noted the prospect of additional support should Fonterra milk powder auction price data tomorrow show further improvement.

Meanwhile, market pricing is factoring in a higher probability the Reserve Bank of Australia will increase its target rate today. Derek Rankin of Rankin Treasury Services believed an RBA rate hike would drive the aussie higher against the US and the kiwi would go along for the ride.