NZ Dollar Outlook: US earnings set to dominate

Photo / Dean Purcell

The New Zealand dollar may be little changed over the next five days after a 3.2 per cent surge last week took it above 71 US cents for the first time in a fortnight as investors await the second-quarter earnings season in the U.S.

All seven economists and strategists in a BusinessDesk survey expect the currency to stay in its recent trading against the greenback this week, with two giving a downward bias and one calling for it to gain.

The kiwi dollar slipped back to 70.93 US cents from 71.03 cents this morning as investors gear up for the US reporting season, which is expected to show Standard & Poor's 500 companies lifted quarterly profits 34 per cent from the same period a year earlier, according to analysts' estimates compiled by Bloomberg.

Earnings season is expected to give investors a better handle on how the recovery of the world's biggest economy is panning out, after soft data in recent weeks has doomsayers predicting a double-dip recession.

"The market's expecting reasonably good reports, but the actual data shows there's a risk that it's not as good as they think," said Derek Rankin, director of Rankin Treasury Advisory. "The markets are a real Jekyll and Hyde, going from one extreme to the next."

Rankin predicts the kiwi will spend the week consolidating on last week's gains, and expects it would struggle to push above 71.30 US cents.

The consumer price index probably rose 0.5 per cent in the three months ended June 30, according to a Reuters survey.

The data, out on Friday, is expected to be the last of the benign inflation period before the Reserve Bank has to begin taking the emissions trading scheme and increased goods and services tax into account when setting monetary policy.

Robin Clements, economist at UBS New Zealand, said provided the data comes in as expected, the domestic scene should be relatively supportive for the kiwi dollar.

May retail sales probably grew 0.6 per cent after spending on electronic cards reported its fifth straight monthly gain in June as looming tax cuts and the GST hike gives consumers more incentive to open their wallets earlier rather than later.

It won't be all plain-sailing for the kiwi, with housing data from the Real Estate Institute expected to show soft sales activity last month. QV Valuations data showed property values reported their second monthly decline, as people remain wary of the country's economy recovery.

Across the Tasman, the NAB business confidence survey and the Westpac consumer confidence survey will be the main releases, though kiwi isn't expected to shift out of recent ranges. Strong employment data in Australia helped revive investors' confidence in the strength of the nation's economy, and is being seen as a proxy for wider risk appetite.

The kiwi was little changed at 80.93 Australian cents from 80.91 cents on Friday in New York. All seven strategists expect a quiet week for the kiwi on the cross-rates, with investors staying focused on the US earnings season.

The kiwi dollar gained to 67.42 on the trade-weighted index of major trading partners' currencies from 67.27 on Friday in New York, and gained to 62.97 yen from 62.80 yen last. It gained to 56.15 euro cents from 55.93 cents last week, and gained to 47.11 pence from 46.66 pence.

On the data radar this week is US CPI, and the Michigan confidence survey, along with European industrial production data.

Investors will also be keeping an eye on the first Greek auction of government bonds on Tuesday since accepting the European Union/International Monetary Fund bailout in May.