NZ Dollar Outlook: Kiwi likely to test US72c ahead of US labour data

The New Zealand dollar will likely test 72 US cents this week ahead of American employment data which is expected to show the labour force in the world's biggest economy shrank this month.

Three of seven economists and strategists in a BusinessWire survey predict the kiwi will gain this week ahead of US non-farm payrolls, which is forecast to paint a weaker picture for America's recovery. One strategist is neutral with an upward bias, one predicts the currency will consolidate on last week's gains, and two others project a downward bias on the kiwi.

The currency touched a six-week high after sentiment for the greenback dimmed on weaker than expected economic data in the U.S., which stoked investors' appetite for the kiwi amid New Zealand's improving outlook. That comes amid American employment data which is expected to show the world's biggest economy shed 100,000 jobs this month.

Khoon Goh, senior markets economist at ANZ New Zealand said a weak reading could send sentiment for the kiwi either way, as markets could flock to the relative safety of the greenback and yen, or exit out of their US dollar holdings if the outlook for America's economy gets too grim.

"Whether the New Zealand dollar continues its march higher depends on whether the US dollar weakness continues," Goh said. He predicts the kiwi will find strong resistance at 72 US cents this week, and will consolidate on its recent gains.

The National Bank Business Outlook out today is expected to show firms are still upbeat about the economy and their own activity, with rising prices for raw materials predicted to show an improvement in the rural sector.

Helping firm this opinion will be the ANZ Commodity Price Index on Thursday, which has reported record highs in recent months. That comes as farmers have struggled to tap lenders for new cash in the fall-out of the global financial crisis in 2008, while farm sales remain in the doldrums.

Robin Clements, economist at UBS New Zealand, said the business confidence survey and commodity price data should be positive for the kiwi dollar, "even if they come off slightly." Clements picks the currency will gain this week, with the US payrolls data the main driver.

Two strategists are downbeat on the kiwi this week, expecting stocks on Wall Street to fall over the coming five days, helping sap investors' appetite for higher-yielding, or riskier, assets.

Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia, said the Dow Jones Industrial Average is "delicately poised" at the moment, and if it slides this week, it will drag the kiwi with it. He says the New Zealand currency will struggle to get through 71.50/72 US cents this week as traders sell on rallies.

Imre Speizer, market strategist at Westpac Bank, said stocks on Wall Street ended lower last week, even though they had a strong finish, and that will likely weigh on the kiwi dollar, which will struggle to gain above 71.60 US cents this week.

Leaders of the Group of 20 nations met in Canada over the weekend, and though nothing substantial came out of the meeting for foreign exchange markets, people were upbeat about the tailored approach the 20 biggest economies will take in addressing fiscal concerns. The news came on the heels of massive austerity measures being put in place throughout Europe after debt problems among the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain) threatened to spread across the region.

The kiwi climbed to 57.52 euro cents from 57.09 cents on Friday in New York, and gained to 47.31 pence from 47.06 pence. Mike Jones, strategist at Bank of New Zealand, said the problems in Europe aren't going anywhere soon, and he predicts the kiwi will push towards a post-unification high of 60 cents against the euro in the coming weeks.

The kiwi will probably trade in familiar ranges on a trade-weighted basis this week, according three strategists surveyed by BusinessWire. Two others say it faces downward pressure this week, while the last two expect it to rise. The kiwi climbed to 68.19 on the trade-weighted index of major trading partners' currencies from 67.50 on Friday in New York.

The currency rose to 63.63 yen from 62.74 yen last week, and was little changed at 81.33 Australian cents from 81.29 cents.

On the data radar this week is Chinese manufacturing figures, which will lend support, or otherwise, to the driving room of the world's economic recovery, while more US data, including pending home sales and ISM manufacturing, will keep investors focused on the world's biggest economy. On Thursday, Australia will release last month's retail sales data which is expected to show consumer spending rose 0.2 per cent.