NZ Dollar Outlook: Kiwi to be capped at US70c with offshore news the focus

Photo / Dean Purcell

The New Zealand dollar will struggle to push above 70 US cents this week, after it surged 3.8 per cent since Thursday's quarter-point rate hike by Reserve Bank Governor Alan Bollard, with offshore news the main focus.

Four of seven economists and strategists in a BusinessWire survey gave the currency a cap of 70 US cents this week after a more positive outlook on the local front underpinned support for the currency late last week. All seven strategists predict the kiwi will trade in a range this week, though two have given it an upward bias.

The kiwi was little changed by data showing consumer spending contracted a seasonally adjusted 0.3 per cent in April, and Real Estate Institute housing data tomorrow is expected to show the property market was still subdued last month.

With ANZ New Zealand's consumer confidence index on Thursday rounding out the local data, investors will be watching movements on the Standard & Poor's 500 index, which has a close correlation with movements in the kiwi dollar. Last week the S&P 500 climbed 3.9 per cent from a six-month low.

"The correlation between the kiwi and the S&P 500 is up around 98 per cent," said Imre Speizer, market strategist at Westpac Bank "You need to pick equities at the moment to pick the kiwi."

Speizer is one of two strategists giving the currency an upward bias this week, predicting it could push to 71 US cents if investors pull back their positions in the greenback.

The kiwi climbed to 69.17 US cents today from 68.69 cents on Friday in New York.

The US has a stream of data out this week, including housing and building reports, jobless claims, producer prices, current account and business confidence, and traders are awaiting President Barack Obama's state the nation address on Tuesday that's expected to focus on the BP oil spill in the Gulf of Mexico.

Federal Reserve Chairman Ben Bernanke's speech on financial reform will also attract investors' interest.

European data out this week is expected to start showing whether the sovereign debt crisis has had any real economic impact on the region, with Germany's Zew survey of business confidence out tomorrow, and last month's regional inflation and employment data out on Thursday.

The kiwi climbed to 56.75 euro cents from 56.62 cents on Friday in New York, and rose to 47.35 pence from 46.78 pence.

Khoon Goh, senior markets economist at ANZ New Zealand, says people will be looking to see whether Europe's sovereign debt crisis has been spreading into economic fundamentals after Chinese exports shrugged off concerns last week, and surged almost 50 per cent last month compared to a year earlier.

"Everyone's wanting to find out" whether the debt crisis has had a real impact on countries that aren't implementing austerity measures, Goh said. "We're looking better today, but as we have seen, it's really fickle." Goh predicts the kiwi will trade in a range this week, with 70 cents a big resistance level that's expected to hold.

Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia, said International Money Market data showed a "massive short" position in the euro, and he "wouldn't be surprised" if there was a squeeze higher as traders get out of their speculative positions, where they've been selling the currency on the expectation they can buy it at a cheaper price.

Though he expects the kiwi will ease against the euro this week, he predicts it will stay in a range of between 67.50 US cents and 70.50 cents this week.

Derek Rankin, director at Rankin Treasury Advisory Ltd., said the kiwi was in the middle of its recent ranges against the Australian dollar, and will probably hang around there with investors opting to wait and see what international news this week holds after several weeks of high volatility.

The kiwi slipped to 80.78 Australian cents from 81 cents on Friday in New York.

The kiwi rose to 63.50 yen from 62.92 yen last week after the new Japanese Prime Minister Naoto Kan warned of a potential default if the world's second biggest economy failed to rein in its high public debt.

Mike Jones, strategist at Bank of New Zealand, said Kan has made it known that he wants a weaker yen, and that his comments were successful in pushing the currency lower.

Six of seven strategists surveyed predict the kiwi will tread water on a trade-weighted basis, with one predicting it will climb.

The kiwi climbed to 67.24 on the trade-weighted index, or TWI, from 66.91 on Friday in New York.

On the data radar this week is the Bank of Japan's meeting today, along with British inflation and labour data later this week.