NZ dollar outlook: Kiwi may gain on positive risk sentiment, commodities, China

The New Zealand dollar may gain this week as rising equity markets and the power of Chinese demand to lift commodity prices help underpin positive risk sentiment Down Under.

The kiwi recently traded at 83.03 US cents from 83.18 cents in New York trading on Friday. The currency has recovered from as low as 81.53 cents on Boxing Day.

It may trade in a range of 81.80 cents to 84.70 cents this week, with a bias to the upside, according to a BusinessDesk survey of five traders and strategists.

The Standard & Poor's 500 Index closed at a five-year high on Friday, following a week in which politicians in Washington managed to avert the fiscal cliff.

The 11th-hour agreement provides a temporary reprieve for the world's biggest economy, with the next battle set for February when the Congress needs to agree to lift the $US16.4 trillion debt ceiling.

Closer to home, the price of iron ore has climbed about 70 percent in the past four months, driven by renewed demand from China, adding to positive sentiment for commodity linked currencies such as the Australian and New Zealand dollars.

China is Australia's biggest export market and New Zealand's second-largest.

"More evidence of China's recovery will help Australian and New Zealand commodity prices and therefore the currencies," says Imre Speizer, senior markets strategist at Westpac Banking Corp. "We'll stay with this positive trend – in the week we're more likely to test the upside than the downside."

He says the kiwi may test 84 US cents this week, with little on the domestic calendar to disturb its progress.

The only local economic data due for release this week is November building consents on Wednesday and November merchandise trade on Thursday.

Globally, the Bank of England's monetary policy committee announces its latest review on January 10 and the governing council meeting of the European Central Bank meets and has a media conference on the same day. Both are expected to keep interest rates unchanged.

The kiwi recently traded at 73.47 yen and is near its strongest level in more than four years. The yen has declined as the Bank of Japan has come under increasing pressure from the new Japanese government to weaken its currency and take other steps to stimulate the economy.

"So 2013 will continue to see us supported," says Alex Sinton, senior dealer at ANZ New Zealand. There are no quick fixes in Europe or the UK and the US is "still driving on Skippers Canyon road" by not yet solving the debt ceiling issues or the economy's underlying problems.

Rental car companies typically do not allow their vehicles on Skippers Canyon, a winding, steep gorge road near Queenstown.

Still, US Treasury bond yields have climbed from their 2012 lows and, taken together with rising equity markets, indicate "there is a lot of hope" for global growth, says Peter Cavanaugh, of Bancorp Treasury Services.

Traders also took heart from last week's release of minutes of the most recent Federal Reserve meeting, which indicated some committee members want quantitative easing to end this year, he says.

(BusinessDesk)

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NZ Market Snapshot

Forex

Sym Price Change
USD 0.7845 0.0017 0.22%
AUD 0.8994 0.0002 0.02%
EUR 0.6203 0.0010 0.16%
GBP 0.4929 0.0003 0.06%
HKD 6.0847 0.0131 0.22%
JPY 84.0120 0.0180 0.02%

Commods

Commodity Price Change Time
Gold Index 1233.8 -1.760 2014-10-14T00:
Oil Brent 85.4 -4.470 2014-10-14T00:
Oil Nymex 81.2 -4.530 2014-10-14T00:
Silver Index 17.4 0.035 2014-10-14T00:

Indices

Symbol Open High Last %
NZX 50 5145.9 5168.7 5145.9 0.33%
NASDAQ 4246.2 4281.3 4213.6 0.32%
DAX 8765.4 8854.4 8812.4 0.15%
DJI 16321.9 16463.7 16321.1 -0.04%
FTSE 6366.2 6403.4 6366.2 0.42%
HKSE 23087.5 23230.3 23048.0 0.67%
NI225 15009.8 15044.3 14936.5 -0.13%