Dollar extends decline as traders eye rate track in data-heavy week

The New Zealand dollar extended its decline after sinking below 70USc last week for the first time in five years, with traders awaiting economic data this week for clues to the track of interest rates.

The kiwi fell to 69.67USc at 5pm in Wellington from 69.93USc at 8am and 69.81USc on Friday in New York. The trade-weighted index declined to 72.86 from 73.10 last week.

The Reserve Bank's decision to cut the official cash rate a quarter point to 3.25% last week has investors questioning how much lower governor Graeme Wheeler will take the key rate. This week brings the next dairy auction and first-quarter balance of payments on Wednesday and gross domestic product on Thursday. Meanwhile, the US Federal Reserve will review policy on Wednesday in Washington, and is expected to firm up its own rate outlook, providing support for the greenback.

"We're still optimistic about the US dollar, which is a big side of the equation, and it looks as if the kiwi/US is going to be heading lower," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "The kiwi closed below that important 70USc level last week – the technical guys love those sorts of things – so it's regressing from the 70s back to the 60s and we still think there is downside."

A BusinessDesk survey of 12 currency advisers predicts the kiwi may trade between 68USc and 71.80USc this week. Seven said the currency would probably fall, three picked it to move higher while two bet it would remain largely unchanged.

A BNZ-BusinessNZ survey today showed New Zealand's services sector expanded at the fastest pace since July 2007, underpinned by growth in sales and new orders.

The local currency edged up to 90.32Ac at 5pm in Wellington from 90.21Ac last week, and declined to 4.3251 Chinese yuan from 4.3339 yuan. It rose to 62.12 euro cents from 61.94 cents last week, and was little changed at 44.83 British pence from 44.87p. The kiwi traded at 86.03 yen from 86.12 yen on Friday in New York.

New Zealand's two-year swap rate fell to 3.17% at 5pm in Wellington from 3.19%, and the 10-year swap rate declined to 4.02% from 4.04%.

(BusinessDesk)