Dollar Outlook: Kiwi may fall ahead of GDP data

File photo

The New Zealand dollar may fall this week, with the unfolding nuclear crisis in Japan and ongoing unrest in the Middle East putting pressure on the kiwi ahead of the release this week of economic growth figures for the fourth quarter.

Five of the six strategists and economists surveyed by BusinessDesk expect the kiwi to decline this week, amid volatile trading in a range of 72 US cents and 74 cents.

One strategist predicted the kiwi will be little changed.

The kiwi was last at 73.02 US cents, having opened the week at 72.89 cents, almost unchanged from its close in New York on Friday.
All six respondents said the market's focus would remain offshore this week, despite the release of local fourth quarter gross domestic product and current account data.

GDP is forecast to have grown by 0.2 per cent in the three-months to Dec. 31 compared to a decline of 0.2 per cent in the third quarter, according to a Reuters poll. Forecasts ranged from -0.5 per cent to 0.4 per cent.

"It may confirm we were in a technical recession, but we already know that the recovery had run out of steam," said Philip Borkin, an economist at Goldman Sachs & Partners.

The Feb. 22 earthquake in Christchurch "dealt us some adverse shocks, and to worry whether we are in recession is just really irrelevant."

Offshore, currency markets will keep Japan in the spotlight after speculation of massive offshore fund repatriations drove the currency to record levels last week in the wake of the March 11 earthquake, tsunamis and ensuing nuclear crisis.

That prompted Group of Seven nations and the Bank of Japan to intervene in the currency market with a commitment to sell yen to ease volatility on global markets.

"What they're trying to do is not draw a line in sand and defend a particular level," said Mike Jones, markets strategist for Bank of New Zealand. "They're trying to prevent disorderly movements in the yen, and looking at the speed of the yen's movement."

Investors are likely to also be watching developments in the Middle East after airstrikes of several targets in Libya over the weekend to enforce a no-fly-zone. The international military intervention has sparked fears that Libyan oil fields would remain shut for an extended period as an act of reprisal.

That saw oil futures spike, with ICE Brent crude futures last at US$116.19 a barrel from US$111.76 last week.

Libya remains a wild card in the market, said Robin Clements, an economist with UBS, with the "potential risk of shocks all over the place".

The Australian dollar is expected to face significantly more headwinds this week than its New Zealand counterpart, with the kiwi expected to continue clawing its way back from recent multi-decade lows.

Strategists and economists said this was due to the ongoing economic backlash from Japan, which was weighing on Asian markets.

Australia economy has a greater exposure to Asia's growth markets than New Zealand.

"The relationship with the Aussie dollar has broken down from a 94 per cent correlation last year" against the New Zealand dollar, said Chris Weston, a markets strategist for IG Markets in Melbourne.

"Now we're at 28 per cent and the same thematic playing through the Aussie may not play through with the kiwi."