NZ dollar falls after dairy prices drop 7.4% at GDT auction, greenback strengthens

Wednesday 4th November 2015

The New Zealand dollar fell, hit by a stronger US dollar and weaker prices at the GlobalDairyTrade auction, stoking concern about the outlook for New Zealand's largest export commodity.

The kiwi dropped to 66.91 US cents at 8am in Wellington, from 67.46 cents at 5pm yesterday. The trade-weighted index declined to 77.27 from 73.05 yesterday.

The kiwi weakened as traders favoured the greenback, betting US economic data broadly in line with expectations will prompt a hike in US interest rate hike next month. A 7.4 percent drop in average prices at the GDT auction overnight also weighed on the kiwi, as increased production from Europe and subdued demand keeps a lid on prices.

"While the US dollar advanced overnight, the New Zealand dollar underperformed other G-10 currencies following the weaker-than-expected GDT auction," ANZ Bank New Zealand agri economist Con Williams and economist Dylan Eades said in a note.

The local focus today will be on third-quarter labour market data scheduled for release at 10:45am. The unemployment rate is expected to increase to 6 percent from 5.9 percent the previous quarter as an increase in labour supply outpaces employment growth, keeping a lid on wage inflation. ANZ expects the unemployment rate to rise to 6.1 percent and says it could be higher if the participation rate doesn't ease from near record highs.

"The New Zealand dollar is likely to remain under downward pressure during the local session, with risks to the Q3 labour market report skewed to the downside," Williams and Eades said in their note.

ANZ expects the kiwi to trade between 65.90 US cents and 67.80 cents today.

The local currency fell to 93.01 Australian cents from 93.69 cents yesterday after the Reserve Bank of Australia kept its benchmark interest rate unchanged and said the prospects for an improvement in economic conditions had firmed a little over recent months.

The kiwi slipped to 61.09 euro cents from 61.23 cents yesterday, declined to 43.39 British pence from 43.74 pence, fell to 81.05 yen from 81.37 yen and weakened to 4.2399 yuan from 4.2736 yuan.

BusinessDesk.co.nz

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