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NZ Dollar Outlook: Traders split on kiwi direction amid volatility

23 Mar 2015

The New Zealand dollar has recently been at the mercy of US dollar volatility and analysts are split on what direction it may take this week.

The kiwi may trade between 73.50 US cents and 77.25 cents this week, according to a BusinessDesk survey of 11 currency strategists, traders and advisers. Four expect the kiwi to gain, three say it may decline and four bet it will remain largely unchanged. It was recently trading at 75.59 US cents.

Over the past week the New Zealand dollar initially fell against a broadly stronger US dollar on expectations the Federal Reserve would signal looming interest rate hikes in the world's largest economy. The kiwi then jumped sharply higher on greenback weakness after it seemed the Fed may take longer than previously expected to hike. New Zealand's higher relative interest rates has meant the local currency has outperformed most others against the greenback as investors search for yield in an environment where more than 20 central banks have cut rates this year, while New Zealand remains on hold.

"After last week there's every reason for everyone to express considerable trepidation about what could happen from here," said Peter Cavanaugh, client adviser at Bancorp Treasury Services. "The New Zealand dollar for the past couple of months has been in a 72-76 US cent range and last week we tested the bottom of that range and this week we are testing the top."

Some traders believe the kiwi could test 80 US cents, a level last seen in January, should it break convincingly through 76.20 US cents, according to the survey.

In New Zealand this week, February trade data is scheduled for release on Wednesday. Traders will also be eyeing Fonterra Cooperative Group's first-half earnings announcement on Wednesday for an update on how much the dairy company expects to pay its farmers this season. Dairy is New Zealand's largest export product.

Traders will remain focused this week on trying to get more clues on the outlook for US interest rates. While the Fed's open market committee last week dropped a reference to being "patient" when it came to lifting rates, Fed Chair Janet Yellen stressed that it did not mean the central bank had become "impatient" to do so.

Today, Cleveland Fed President Loretta Mester will speak in Paris, while Fed Vice Chair Stanley Fischer will talk in New York. St Louis Fed President James Bullard is on a panel in London, on Tuesday, while Chicago Fed President Charles Evans will also speak, in London, on Wednesday. Bullard will talk in Frankfurt, Germany, on Thursday, while Atlanta Fed President Dennis Lockhart will speak in Detroit, and on Friday Fischer will address a Bundesbank conference in Frankfurt.

Fed Chair Yellen will speak at the Federal Reserve Bank of San Francisco Conference on Friday on "The New Normal for Monetary Policy".

The US also has a raft of data scheduled for release which may inform future interest rate moves, including inflation, manufacturing, housing, revised growth and consumer confidence.

In Australia, traders will be looking for any comments on risks in the property market in the Reserve Bank's financial stability review on Wednesday.

Elsewhere, China has a report on manufacturing activity tomorrow and Germany has a business confidence survey on Wednesday, while Japan has inflation and unemployment on Friday.

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