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NZ dollar hangs near 70 US cents as Fed, Wheeler, dairy auction weigh

Tuesday 7th March 2017

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The New Zealand dollar was hovering around 70 US cents and may fall further on expectations the US Federal Reserve will hike interest rates while the New Zealand Reserve Bank stands pat and, in the short-term, dairy prices are seen tumbling at the auction tonight.

The kiwi dollar traded at 70.06 US cents at 5pm in Wellington, having earlier fallen to 69.84 cents, the lowest since Jan. 12, from 70.11 cents late yesterday. The trade-weighted index was at 76.63, having earlier touched 76.59, the lowest since last October, from 76.74 yesterday.

NZX dairy futures are pointing to a 9 percent decline in whole milk powder prices at tonight's GlobalDairyTrade auction, in the second straight decline, after improved weather conditions prompted Fonterra Cooperative Group to increase the amount of product it’s offering in coming auctions on the GDT platform by about 25,000 tonnes, and global supply picked up. The kiwi may extend its slide overnight after the auction, having been weighed down by increased bets the Fed will hike this month while RBNZ governor Graeme Wheeler reiterated last week that local interest rates won't move any time soon.

"You've got the Fed, you've got Wheeler, you've got dairy prices, all weighing on the kiwi," said Imre Speizer, senior market strategist at Westpac Banking Corp. "Over the next month, the New Zealand dollar could easily revisit its lows of December below 69 US cents."

The kiwi fell as low as 68.59 US cents on Dec. 23, the lowest since early June.

Following comments from Fed chair Janet Yellen last week, the market is pricing in a 95 percent chance of a Fed rate hike this month, which has helped push up the US dollar, Speizer said. The kiwi has fallen against most major currencies, though, as traders have looked at the dairy futures and  "Wheeler's emphatic reminder" last week that the official cash rate "is not going anywhere for the next couple of years."

The New Zealand dollar fell to 92.14 Australian cents, having earlier touched 92.07 cents, the lowest since May last year, from 92.54 cents late yesterday. The Reserve Bank of Australia kept its cash rate unchanged at 1.5 percent today, as expected, and governor Philip Lowe said keeping borrowing costs unchanged "would be consistent with sustainable growth in the economy and achieving the inflation target over time."

The local currency rose to 57.21 British pence from 57.05 pence and was at 66.16 euro cents from 66.09 cents. It was little changed at 79.82 yen from  79.79 yen and traded at 4.8363 yuan from 4.8336  yuan.

The two-year swap rate slipped 1 basis point to 2.29 percent and 10-year swaps were unchanged at 3.5 percent.

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