Article – BusinessDesk

May 30 (BusinessDesk) – The New Zealand dollar, having peaked at a fresh 26-year against the greenback, is likely to extend its gains as confidence in the local economy continues to grow while the U.S. currency continues to slide.

NZ dollar outlook: Kiwi likely to rise to fresh post-float highs

By Jason Krupp

May 30 (BusinessDesk) – The New Zealand dollar, having peaked at a fresh 26-year against the greenback, is likely to extend its gains as confidence in the local economy continues to grow while the U.S. currency continues to slide.

All six of the strategists and economist surveyed by BusinessDesk saw the kiwi gaining ground over the course of the week, and likely to chart new waters having established a fresh post-float high of 82.16 U.S. ahead of the midday mark before paring back to recently trade at 82.01 cents.

The currency surged today after government figures showed the nation’s trade surplus rose to a record $1.1 billion in April, beating expectations of a $600 million surplus, which the market took the data as a sign New Zealand’s economic fundamentals are looking solid.

Merchandise exports climbed 17% to $4.7 billion on the back of increased sales of dairy, meat, wool and forestry products, according to Statistics New Zealand, while the value of imports rose 7.2% to $3.5 billion compared to the same month a year earlier, and was weaker than the $3.85 billion forecast in a Reuters survey.

Currency traders will be looking for further signs of improving economic performance tomorrow, when the National Bank Business Outlook survey for May is released, which could prove to be another shot in the arm for the kiwi dollar. Last month’s data showed confidence levels among local businesses rebounded sharply in the wake of the Christchurch earthquake in February and the Japanese tsunami in March.

“Given the currency’s momentum around the post-float high, there is nothing in the near term to stop it in its tracks even though it’s trading quite a way above fair-value on our model,” said Kymberley Martin, markets strategist at Bank of New Zealand.

According to the bank’s analysis, which factors in interest rate differentials, commodity prices and risk appetites, fair value for the currency is around the 74 U.S cents to 75 cents range.

Currency traders will be monitoring Fonterra Cooperative Group’s twice monthly globalDairyTrade auction, on Tuesday in the U.S. The average price of milk powder fell 1.1% to US$4,443 per metric tonne at the previous sale on May 18, although prices are still trading near record highs.

Looking offshore, the ongoing slide in the U.S. currency is likely to see the kiwi move higher over the course of the week, with the greenback having reversed the rally seen in the middle of this month after weaker housing numbers sapped confidence in the pace of the U.S. economic recovery.

The U.S. House Price Index data showed property values fell 5.8% in the year ending March 31. Pending home sales numbers added to concerns, with the index falling to 81.9 in April, an 11.6% decline from the previous month.

That saw the Dollar Index, a measure of the greenback against a basket of six major currencies, slide to 74.75 from 75.07 on Friday in New York, its lowest level since May 10.

Traders will be looking ahead to Friday when U.S. non-farm payroll report for April is due, for a read on the state of the economic recovery in the world’s biggest economy. The market is betting the U.S. will have added 190,000 jobs in the month, according to a consensus estimate compiled by Bloomberg.

“The risk on the kiwi is pressing towards moving a bit higher given the outlook is for a softer U.S. dollar,” said Richard Grace, chief currency strategist and head of international economics at Commonwealth Bank Australia. “We’re seeing first quarter weakness spilling into second and the U.S. dollar likely to reflect the softer economic outlook.”

On the cross rates, the New Zealand currency is expected to extend gains against its Australian counterpart when Treasurer Wayne Swan releases first quarter gross domestic product numbers on Wednesday.

The Australian economy probably shrank by as much as 1% in the first three months of the year, due to wide scale flooding in Queensland and the impact of Cyclone Yasi. The median estimate in a Bloomberg News survey of 23 economists is for a 0.3% first-quarter contraction.

Europe’s ongoing sovereign debt crisis remains a key threat to risk appetites this week, according to Imre Speizer, market strategist at Westpac Banking Corp., with markets watching for announcements on a possible Greek debt restructuring package. Speizer said any move to extend the terms of Greece’s debt is likely to see the euro slide, with the kiwi likely to follow suit.

(BusinessDesk)

Content Sourced from scoop.co.nz
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