NZ dollar little changed after dairy prices rise; US inflation, Fed minutes loom

Wednesday 19th August 2015

The New Zealand dollar was little changed after dairy prices jumped from a six-year low at the latest GlobalDairyTrade auction, and ahead of US inflation data and minutes to the last meeting of the Federal Reserve.

The kiwi traded at 65.82 US cents at 5pm in Wellington from 65.84 cents at 8am and 65.89 cents yesterday. The trade-weighted index was little changed at 70.94 from 71.04 yesterday.

The GDT average winning price jumped 14.8 percent to US$1,974 at the latest event, ending a string of declines that forced Fonterra Cooperative Group to cut its forecast payout to farmers, and prompted economists to pare back their expectations for economic growth. The rebound had been expected by investors with NZX futures contracts indicating a gain, and markets are eyeing up US information to get a steer on the likelihood for an interest rate hike by the Fed when it next meets in September.

The kiwi had been rising heading into the dairy auction, and "you got the result so there was some follow through afterwards, but after that it stalled - there's nothing happening around the world until we get the US CPI and Fed minutes much later tonight," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. "65 (US cents) is proving to be very sticky - it's had a few goes at it and hasn't got through, and doesn't look like getting through."

Speizer said the "extreme short positions" traders have in in the kiwi - where they sell the currency on the expectation they can buy it at a cheaper price - are holding it back, and it needs "fresh negative information to push it through."

Government data today showed New Zealand producer prices fell in the three months ended June 30 due to cheaper milk and electricity prices, with input costs dropping faster than output prices.

New Zealand's two-year swap rate was unchanged at 2.88 percent, and the 10-year swap increased to 3.63 percent from 3.6 percent.

The local currency slipped to 4.2109 Chinese yuan from 4.2255 yuan yesterday, and gained to 89.87Australian cents from 89.48 cents. It was little changed at 59.55 euro cents from 59.59 cents yesterday, and fell to 42 British pence 42.28 pence. The kiwi declined to 81.78 yen from 82.03 yen yesterday.

BusinessDesk.co.nz

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