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FX COLUMN-NZ dollar to outpace a burdened Singapore dollar

Tuesday, 9 Oct 2012 | 6:06 AM ET

-- Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own --

By Neal Kimberley

LONDON, Oct 9 (Reuters) - Buying New Zealand dollars and selling Singapore dollars may have merits at a time when major exchange rates are holding in ranges.

An important factor in the New Zealand dollar's favour is the performance of prices for the country's main commodity exports.

ANZ Bank's commodity price index, which includes commodities that account for around 60 percent of New Zealand's annual export earnings, posted its biggest monthly gain in a year and a half in September, rebounding from July's 28-month low..

Dairy prices, an important export for New Zealand, are set to remain high and New Zealand's dairy industry may benefit more than usual given U.S. rivals have been hit by the worst drought in half a century.

The contrast between the economic challenges facing Singapore and the relative strength of the New Zealand economy also favours selling Singapore's currency and buying New Zealand dollars.

New Zealand house prices rose in September and its economic performance is still reasonably robust compared with other developed economies. Interest rates are therefore expected to rise rather than fall from 2.5 percent, according to a Reuters poll .

Of course, the picture for New Zealand is not entirely rosy, with the jobless rate at two-year highs and the government expecting growth to slow in the second half of 2012.

But it is faring better than Singapore, which releases its third quarter gross domestic product data on Friday at 8:00 a.m. local time (0000 GMT).

Economists polled by Reuters expect Singapore's gross domestic product shrank in the third quarter after contracting in the second.

Prime Minister Lee Hsien Loong was reported as saying on Tuesday that Singapore may avoid a technical recession in the third quarter as second quarter data might be revised up.

Even if the city state avoids a technical recession, the Monetary Authority of Singapore (MAS), which issues a policy statement at the same time as the GDP data, could ease policy by slowing the pace at which its dollar appreciates against the currencies of its main trading partners.

Any such move could be the trigger for the New Zealand dollar to gain ground against the Singapore dollar.

Having traded at 1.0240 on Oct 2, the currency pair has drifted down to flirt with its 100-day moving average at 1.0025.

While the 2012 high of 1.0597, seen on Feb 15, might be too ambitious a target, New Zealand dollar gains to at least the mid-1.02s might be attainable.

(Editing by Swaha Pattanaik; Reuters Messaging: neal.kimberley.thomsonreuters.com@reuters.net)

((neal.kimberley@thomsonreuters.com))

Keywords: MARKETS FOREX/ASIA