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NZ dollar gains on commodity pickup; swap rates fall ahead of OCR review

Tuesday 9th August 2016

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The New Zealand dollar gained as optimism about stronger prices for commodities ranging from crude oil to milk powder lifted commodity-linked currencies, while two-year swaps fell to a new low in the run-up to Thursday's Reserve Bank review.

The local currency rose to 71.29 US cents as at 5pm in Wellington from 71.11 cents late yesterday. The trade-weighted index advanced to 75.82 from 75.61 yesterday. 

September whole milk powder futures on the NZX have soared 19 percent since July 19 and traders are optimistic there will be further gains in next week's GlobalDairyTrade auction after whole milk powder rose 9.9 percent last week. More broadly, commodity-linked currencies including the Australian dollar and the kiwi have benefited from gains in crude oil on speculation the Organisation of the Petroleum Exporting Countries will limit product to underpin prices. Traders are also looking ahead to Thursday's interest rate review and the extent to which further cuts will be signalled.

"Commodity currencies are a bit firmer and there's still positive investor sentiment following through from the strong (US) non-farm payrolls," said Sheldon Slabbert, sales trader at CMC Markets NZ. "That will probably remain until the big risk event this week, which is the RBNZ on Thursday."

A quarter-point cut to the official cash rate by the Reserve Bank on Thursday is already priced in and there is a risk the kiwi doesn't fall much further after the monetary policy statement unless governor Graeme Wheeler makes a cut "and really backs it up with some firm words, making no bones about the fact that they are taking a dovish stance and looking to cut rates further and may take some other measures as well," he said.

Other measures could include pointed comment on the extent to which banks pass on lower interest rates to their customers, he said.

New Zealand's two-year swap rate fell about 5 basis points to a record low 1.94 percent, according to Reuters data. The 10-year swaps slipped 2 basis points to 2.45 percent. 

The kiwi didn't move much after figures showed retail spending on electronic cards rose a seasonally adjusted 0.3 percent in July, slowing from the 1.2 percent increase in June. Spending on hospitality was up 2.9 percent in July, the largest area of increase.

The local currency climbed to 4.7473 yuan from 4.7365 yuan and was little changed at 93.37 Australian cents from 93.42 cents. The kiwi rose to 72.97 yen from 72.55 yen, gained to 54.83 British pence from 54.35 pence and increased to 64.35 euro cents from 64.06 cents.

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