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NZ dollar tipped to climb this week

Published: 4:35PM Tuesday June 05, 2012 Source: BusinessDesk

  • NZ flag and dollar generic  (Source: ONE News)
    Source: ONE News

The New Zealand dollar may rise this week as leaders of the Group of Seven nations meet to discuss Europe's debt crisis and the Reserve Bank of Australia reviews monetary policy amid speculation it will slash the cash rate.

The kiwi traded at lunchtime at 75.86 US cents, up from 75.70 cents at 8am. That's right in the middle of this week's predicted trading range of 74.50 cents to 77.35 cents, according to a poll of six analysts by BusinessDesk.

Of the analysts surveyed, four said the kiwi will finish the week higher and two lower.

Leaders of the G7 have agreed to discuss Europe's debt crisis via an emergency conference call on Tuesday.

Spain is likely to be top of the agenda after the nation's fourth-biggest bank, Bankia SA asked for 19 billion euros of state funding last week after it increased its provision for bad debts. That's more than the 15 billion euro government estimate to shore up the entire sector.

European policymakers are also considering steps to strengthen the euro zone's structure, agreeing to discuss closer banking cooperation after the European Commission called for a "banking union" to integrate tighter supervision of lenders and create a pool of EU funds to clean up banks with cross-border exposure.

"Any more-positive tale around a fiscal union in Europe will be a plus," said Imre Speizer, market strategist at Westpac Banking Corp.

"Policy makers should be starting to talk about what steps they could announce soon to put up a firewall about the crisis."

The kiwi was unchanged on 77.79 Australian cents from 8am as the Reserve Bank of Australia prepares to review its target cash rate this afternoon. In May the RBA cut rates by 50 basis points to 3.75 percent, closing the gap with New Zealand's 2.5 percent official cash rate.

Traders are beating the RBA will cut the cash rate by 141 basis points over the next 12 months, according to the Overnight Swap Curve. In New Zealand traders are pricing in a 45 basis point cut.

"The market positioning is how much, not if," the RBA will cut rates, said Peter Cavanaugh, senior client adviser at Bancorp. "It's really how dramatic the RBA is going to be - New Zealand could become more attractive if the RBA was to get exceedingly aggressive today."

The RBA meeting is followed by Australia's first quarter gross domestic product tomorrow and employment numbers on Thursday.

Central banks in Canada and Bank of England will also meet this week.