The ‘Kiwi’ is expected to fall over the course of the week as a drought affecting the nation’s north island is expected to cost the economy up to one billion Dollars in losses. The currency is also being weighed down against the US Dollar as the latest US employment data added to signs that the world’s largest economy is on course for a strong recovery. Economists are expecting the currency to trade in a range of 81 cents to 83 cents over the week.
Signs of a stronger US economy come as talk of drought in New Zealand clouds the outlook for a domestic economy that was otherwise heading for steady growth this year and heightens interest in Reserve Bank governor Graeme Wheeler’s monetary policy statement on Thursday, where he is expected to keep the official cash rate unchanged at 2.5%.
The ongoing drought is causing investors to take a negative view of New Zealand’s economic performance. Dairy products have risen by more than 10% over the past fortnight, normally such a move would positive effects on the currency, this time however it has not.
“Normally, a jump in dairy prices would shine through in the New Zealand dollar but it was attributed to a lack of supply,” said Peter Cavanaugh, senior client adviser at Bancorp Treasury Services. A number of technical indicators point to the threat of a strong US dollar, he added.
The ‘kiwi’ is likely to be at the mercy of events from elsewhere in the world as domestic economic data is thin on the ground this week. Thursday could see the currency’s biggest movement as Australia releases is latest employment figures. The bigger Oceanic nation is expected to have added 5000 jobs last month which will most likely have a positive impact on the New Zealand Dollar.
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