Dollar Outlook: Kiwi may rise with commodities, growing risk appetite

Photo / Martin Sykes

The New Zealand dollar may extend its gains this week, as the currency continues to ride the bow wave of rising global risk appetite, surging commodity prices and ongoing weakness in the greenback.

Six of the eight market strategists and economists surveyed by BusinessDesk predicted the kiwi dollar will push higher this week, with increasing topside resistance as the strength of currency continues to diverge the from the state of the domestic economy. One economist saw it as flat, while one saw it as falling.

The kiwi was last trading at 78.16 US cents, up from 78.10 on Friday in New York, and may push upward to just below 80 cents, a level last seen in November last year.

With no tier-one data on the local front, traders' attention will be fixed offshore, where risk appetites continue to see global equities and commodity prices surge. On Wall Street, first quarter earnings for Standard & Poor's 500 companies are expected to have increased 11.4 per cent from a year earlier, according to Thomson Reuters data.

The Reuters Jefferies CRB Index, a measure of 19 commodities, gaining 1.2 per cent to 368.7 from Friday in New York, with energy and metal prices rising to fresh highs. ICE Brent Crude futures were last at US$ 126.90 a barrel, the highest level in 21/2 years, while gold rose to a new historic high of US$1,474.70 an ounce.

"Investors are becoming more optimistic for global growth, and although there are any number of risks out there, they have been downplayed on the expectation that the global economy will grow at 4 per cent to 5 per cent this year," said Mike Jones, a markets strategist at Bank of New Zealand.

So-called growth currencies, such as the New Zealand and Australian dollar, are also expected to benefit from the continued weakness in the US currency.

The greenback came under renewed selling pressure after the narrowly-avoided government shutdown on Friday night raised questions around how the world's largest economy will service its mounting debt. The dollar index, a measure of the greenback against a basket of six currencies, fell 1 per cent from Friday to 75.68, its lowest level in 16 months.

"The US is heading towards a sovereign debt crisis, and if they don't resolve it soon we will have a Greece-type situation," said Derek Rankin, director of Rankin Treasury Advisory Ltd. "Greece is a small country, it is 2 per cent of the euro zone, that not a big deal but America is."

Markets will also be looking to take a read on the US economy from the release of the Federal Reserve's Beige Book which is due on Thursday, an anecdotal measure of the state of the US economy published eight times a year.

A positive reading could provide a short-term boost to the US dollar, which may see growth currencies track lower, but debt concerns are expected to overshadow any long-term gains, said Christ Tennent-Brown, an economist at Commonwealth Bank of Australia.

The Australian dollar is expect to maintain its upwards momentum this week, which should provide some added upward impetus for the kiwi, according to market strategists.

The Aussie dollar was last trading at US$1.0554, having eased back slightly from a fresh post-float high of US$1.0582, and is widely seen as pushing towards US$1.06 to US$1.08.

"With the highest interest rate in the developed world, that is where high-yield players are," said Imre Seizer, market strategist at Westpac Bank "People continue to buy the Australian dollar and sell the yen, in other words the carry trade is back."

Markets also will be watching the release of China's consumer price index for March on Friday afternoon for further signs of monetary policy tightening in the world's second largest economy.

BNZ's Mike Jones said the market had priced in a rate of 5.2 per cent, up from 4.9 per cent in the previous month, with any "read above that level likely to trigger selling of the Aussie and kiwi dollar".

China is Australia's biggest trading partner, and New Zealand's second biggest after Australia.