NZ dollar break below 90.50 Australian cts ahead of dairy auction

Tuesday 19th August 2014

The New Zealand dollar fell below a key support level against the Australian dollar and weakened against the greenback as traders took advantage of weaker producer prices and and government economic forecasts to sell the kiwi ahead of the latest dairy auction.

The New Zealand dollar fell as low as 90.28 Australian cents and was at 90.40 Australian cents at 5pm in Wellington, from 91.11 cents late yesterday. The kiwi fell to 84.45 US cents from 84.98 cents and still has a way to go to reach a support level of 84 cents.

Government figures today showed producer output prices fell 0.5 percent in the second quarter while input prices dropped 1 percent, mainly reflecting a decline in dairy prices. Meantime, the government trimmed its forecast for its 2015 budget surplus and reduced its projection for near-term economic growth, citing weaker commodity prices and a lower tax take. With everyone from the Treasury to the Reserve Bank citing the drop in dairy, there is extra focus on the GlobalDairyTrade auction overnight, after prices fell in 11 of the past 12 sales.

"There's a lot of focus on the dairy auction tonight," said Raiko Shareef, currency strategist at Bank of New Zealand. "The trend is still very strongly negative" and a further substantial decline could see the kiwi test its support level of 84 US cents, he said.

The kiwi has twice nudged below 90.50 Australian cents in the past three weeks, having failed to break through in early June. It was last lower in December last year.

"We have tested that three times without a convincing break lower," Shareef said. It fell today "as news just piled up in a fairly quiet trading day."

Among other indicators out today, the Reserve Bank's survey of expectations showed businesses have trimmed their expectations for both inflation and economic growth over the next two years. The central bank has signalled a pause in its interest rate tightening cycle as it gauges the impact of increases in the official cash rate so far this year.

The trade-weighted index fell to 79.21 from 79.62 yesterday.

The local currency traded at 86.66 yen from 86.92 yen yesterday, and fell to 63.22 euro cents from 63.42 cents. It traded at 50.51 British pence from 50.78 pence.

BusinessDesk.co.nz

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