The New Zealand dollar will probably decline against its trans-Tasman counterpart this week as signs of a revival in the Australian economy prompt that nation's central bank to remove its easing bias, turning attention to the next hike rather than the next cut.
The kiwi will probably trade between 91 Australian cents and 93.70 cents, according to a BusinessDesk survey of eight currency strategists and traders. Four expect the kiwi to decline against the Aussie, while one expects a gain and three say it will remain stable. The kiwi recently bought 92.47 Australian cents.
The New Zealand dollar touched an eight-year high against the Aussie last month as New Zealand's economy benefits from a boom in soft commodities such as dairy while Australia's economy weakens on waning demand for its mining resources. Still, stronger inflation data in Australia may prompt the central bank to remove its easing bias at its meeting tomorrow, crimping the kiwi's 14 per cent advance over the past year.
"The RBA will remove its easing bias this week," said Imre Speizer, senior market strategist at Westpac Banking Corp in New Zealand. "Markets may then jump the gun and start to price in some interest rate hikes over the year. That should be a catalyst to push the Aussie up over the kiwi."
With benchmark interest rates at a record low 2.5 per cent in both countries, traders currently expect Australian interest rates to remain largely on hold this year while New Zealand rates are expected to rise 122 basis points, according to the Overnight Swap Curve.
The kiwi may resume its advance against the Aussie once New Zealand rates start rising in March, peaking at around 96 Australian cents mid-year, Speizer said.
The RBA will detail its updated economic forecasts on Friday, with the release of its Statement on Monetary Policy. Other data out in Australia this week includes manufacturing, commodity prices and building approvals today and retail and trade on Thursday.
Traders will also be eyeing the Australian NAB business confidence quarterly survey on Thursday after the monthly reading showed a rebound in December.
In New Zealand, the focus this week will be on Wednesday's release of fourth quarter employment figures. The nation's unemployment rate probably dropped to 6 per cent from 6.2 per cent, while employment growth slowed to a 0.6 per cent pace from a 1.2 per cent in the third quarter, according to Reuters polls.
The ANZ publishes its world index of commodity prices tomorrow, with the scope for further upside limited after prices rose to the second highest on record in December, UBS economist Robin Clements said in a note. Fonterra's Global Dairy Trade Auction results are due on Wednesday.
Meanwhile, Auckland realtor Barfoot & Thomson is expected to publish its latest data for January mid-week. New Zealand markets will close Thursday for the Waitangi Day public holiday.
In the US, traders will be focused on the key non-farm payrolls report on Friday as they mull the likely pace of future tapering of monetary stimulus by the Federal Reserve. Payrolls probably climbed by 180,000 workers in January after the coldest December since 2009 chilled job growth to just 74,000 that month, according to Bloomberg.
Leading into the jobs report is ADP data on payrolls on Wednesday an ISM manufacturing report today and an ISM non-manufacturing report on Wednesday.
The New Zealand dollar will probably trade between 77 US cents and 82.80 cents this week, according to the BusinessDesk survey of nine traders and strategists. Four expect the currency to advance while two expect a decline and three say it will remain largely unchanged. The kiwi recently bought 81.03 US cents.
Concern about emerging markets may continue to weigh on the local currency as investors favour so-called safe havens such as the Japanese yen.
China publishes data on non-manufacturing PMI today after a report at the weekend showed its official gauge of the manufacturing sector slipped to a five-month low in January, confirming a slowdown in factory activity in the world's second-largest economy.
Markets are closed in China this week for New Year celebrations.
Central banks in Europe and England are expected to keep rates unchanged this week, though the European Central Bank will likely maintain its easing bias after a weaker than expected inflation report on Friday.