NZ dollar declines ahead of Fed meeting; dairy prices dip, current account beats expectations

Wednesday 17th June 2015

The New Zealand dollar edged lower ahead of the US Federal Reserve's policy meeting, which investors expect will outline the central bank's plan to start raising interest rates as the US economy gathers momentum.

The kiwi slipped to 69.66 US cents at 5pm in Wellington from 69.84 cents at 8.30am and 69.88 cents yesterday. The trade-weighted index declined to 72.73 from 72.89.

The Federal Open Market Committee will review the Fed's zero-to-0.25 percent target band for the federal funds rate on Wednesday in Washington and traders expect chair Janet Yellen will outline the central bank's track away from the extraordinarily loose monetary policy run since the global financial crisis. The Fed has previously signalled rates would start rising this year, depending on the strength of the economic data, which has beaten expectations in recent months.

"It's more about the Fed shoring up market expectations about when and what circumstances for them to actually go and do these rate hikes," said Stuart Ive, senior dealer, foreign exchange, at OMF in Wellington. "The kiwi has been creeping down for no real reason and it's probably a little bit of market flows squaring up before the FOMC meeting."

New Zealand first-quarter gross domestic product tomorrow will also attract attention from investors and is thought to have grown 0.6 percent, according to a Reuters poll. Government data today showed the current account surplus of $662 million in the quarter was more than expected, assisted by increased tourist spending and cheaper oil prices.

The local currency was largely unchanged by a drop in milk prices in the latest GlobalDairyTrade auction. OMF's Ive said the reduced supply at the latest event indicated prices may continue to soften when production starts gearing up.

Weak dairy prices were cited by the Reserve Bank as a key reason for last week's quarter-point cut to the official cash rate.

New Zealand's two-year swap rate was unchanged at 3.15 percent at 5pm in Wellington from yesterday, and the 10-year swap rate edged down to 3.99 percent from 4 percent.

The local currency edged up to 90.16 Australian cents from 90.03 cents yesterday, and fell to 4.3247 Chinese yuan from 4.3373 yuan. It was little changed at 61.97 euro cents from 61.94 cents, and fell to 44.53 British pence from 44.75 pence. The kiwi dropped to 86 yen from 86.34 yen yesterday.

BusinessDesk.co.nz

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