NZ dollar drops to three-week low as falling dairy prices, slowing Australia weigh

Wednesday 21st May 2014

The New Zealand dollar dropped to a three-week low after dairy prices extended their decline at the latest auction, and as investors get wary of a downbeat Australian economy.

The kiwi fell as low as 85.51 US cents, trading at 85.53 cents at 5pm in Wellington from 85.69 cents at 8am and 86.15 cents yesterday. The trade-weighted index declined to 79.71 from 80.20 yesterday.

Prices at the GlobalDairyTrade auction fell for a seventh event, adding to speculation the New Zealand dollar is overvalued as Reserve Bank governor Graeme Wheeler warned this month. A slump in Australian consumer sentiment added to the downbeat outlook for that nation's economy, sapping demand for the Australian dollar and dragging the kiwi down with it.

"Fonterra's GlobalDairy auction had another fall, its seventh consecutive decline, and that's really weighing on the kiwi," said Michael Johnston, senior trader at HiFX in Auckland. "What the Reserve Bank had to say the other day makes it difficult to construct a scenario where you can see a sustained rally in the kiwi dollar."

Traders largely ignored local data showing net migration to New Zealand continued to rise in April, as fewer locals left for Australia, and increasing pressure on the housing market.

The kiwi fell to 86.52 yen, a two-month low, from 86.83 yen yesterday after the Bank of Japan maintained its policy of near-zero interest rates and quantitative easing.

HiFX's Johnston said the cross-rate was also pushed down by a liquidation of a carry-trade position.

Traders will be watching for a Chinese manufacturing indicator, minutes to the Federal Reserve's latest policy meeting, and the Reserve Bank of New Zealand's survey of inflation expectations.

The local currency was little chagned at 92.63 Australian cents at 5pm in Wellington from 92.65 cents yesterday, and dropped to 62.39 euro cents from 62.82 cents. It declined to 50.79 British pence from 51.22 pence.

BusinessDesk.co.nz

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