Dollar holds above 67 US cents on milk sale

Thursday 6th August 2009

The New Zealand dollar held above 67 US cents as yesterday’s surge in milk powder prices in Fonterra’s online auction stoked optimism the local economy is poised to recover and ahead of jobs data that may show the unemployment rate is lower than the central bank forecasts.

Milk powder prices rose 26% to US$2,301 per metric ton in yesterday’s globalDairyTrade online auction and revived optimism dairy prices have passed the bottom of the trough and are on the way back up.

New Zealand’s Household Labour Force Survey out today will show unemployment climbed to 5.6% from 5%, according to a Reuters survey. Stocks on Wall Street slipped as data showed the US service sector contracted and companies shed more jobs than expected.

The kiwi’s strength “is the residual effect from this Fonterra number – people are getting too built up on that news,” said Imre Speizer, currency strategist at Westpac Banking Corp. “The market has extrapolated the trajectory (from the auction), and there’s some slight over-optimism regarding milk prices.”

The kiwi gained to 67.35 US cents from 67.24 cents yesterday, and rose to 62.31 on the trade-weighted index, or TWI, a measure of the currency against a basket of trading partners, from 62.25. It edged higher to 79.99 Australian cents from 79.90 cents yesterday, and was little changed at 63.96 yen from 63.97 yen. It was unchanged at 46.71 euro cents.

Speizer said the currency may trade between 66.50 US cents and 67.60 cents today, and was more likely to break the top-side than the bottom. It will take a big surprise in the employment data to move the kiwi, and he said a smaller-than-expected jobless number would have a greater impact on the New Zealand dollar, driving the currency higher.

“If it’s lower than 5.5%, we would see an even bigger positive reaction” than if unemployment pushes above the central bank’s 5.9% forecast, Speizer said.

Australian employment data out today will keep the market on edge ahead of US non-farm payrolls on Friday in the US.

Traders will be watching the Bank of England when it reviews monetary policy in the UK today. The central bank is expected to lift its quantitative easing, but this isn’t a sure thing with recent data showing signs of improvement in the UK economy.

Businesswire.co.nz

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