Dollar outlook: Kiwi seen heading lower as traders bet on US rate hikes

The New Zealand dollar, which has shed more than 3% so far this month, is likely to drop further this week as momentum builds for interest rate hikes in the US.

The kiwi may trade between 62.85USc and 67.50USc this week, according to a BusinessDesk survey of 10 currency analysts. Eight expect the kiwi to fall, two say it may remain relatively unchanged and none picked it to rise. It recently traded at 65.38USc.

The US dollar is heading higher as traders increasingly bet that the Federal Reserve will hike interest rates in December. Expectations for a Fed rate hike began to build after the Federal Reserve Open Market Committee sounded more upbeat about the outlook for the economy at its October policy meeting.

They were nudged further along last week by chairwoman Janet Yellen saying that the December meeting was a "live possibility" for an interest rate hike, and after the key nonfarm payrolls report showed the labour market was tracking better than expected. Traders will be closely watching other Fed speakers this week to see if they deliver the same message, which could push the greenback ever higher and weigh on the kiwi.

"I don't think the data is going to be such a big deal this week. It will just be watching what the Fed speakers say and, if they say the same thing, if they are all singing from the same page, then you will just get maybe a bit more reaction yet," said Imre Speizer, senior market strategist at Westpac Banking Corp.

The recent signals from the US "have now caused the market to have quite a sharp rethink on when the Fed is going to go, and I think they are now zoning in on December as the date so that's caused the US dollar to go up."

Speizer expects the kiwi to head towards 62USc over the next few months.

Boston Fed president Eric Rosengren is to discuss the US economic outlook today; St Louis Fed president James Bullard, Richmond Fed chief Jeffrey Lacker, Chicago Fed boss Charles Evans, and the New York Fed's William Dudley are all set to speak on Thursday; while Cleveland Fed President Loretta Mester will hold a talk on Friday.

A report this Friday is expected to show US retail sales increased 0.3% last month, following a 0.1% advance in September, according to a Reuters poll. That's a sign of positive momentum heading toward the biggest shopping day of the year, Black Friday, on November 27 and Christmas.

Before the retail sales data, there will be reports on the NFIB small business optimism index, import and export prices, and wholesale trade, due today; weekly jobless claims, due Thursday. Reports on the producer price index, business inventories, and consumer sentiment are also scheduled for release on Friday.

In New Zealand this week, the Real Estate Institute is due to publish its October house sales data tomorrow, while Statistics NZ releases October electronic card spending data. On Wednesday, the Reserve Bank releases its latest Financial Stability Report, where it is likely to provide an update on the housing market and the dairy sector.

On Thursday, the BNZ-BusinessNZ gauge of manufacturing activity is released, as well as October food prices and the ANZ-Roy Morgan consumer confidence survey.

In China this week, October data on inflation and producer prices is published tomorrow, while retail sales, industrial production and fixed investment are due Wednesday.

Meanwhile in Australia, business confidence is out tomorrow, consumer confidence on Wednesday and October employment data on Thursday.

Elsewhere, European Central Bank President Mario Draghi speaks in London on Wednesday.

(BusinessDesk)