NZ dollar may push to 75 US cts as US outlook dims, dairy prices gain

Wednesday 7th September 2016

The New Zealand dollar may extend its run up to 75 US cents as some softer economic data in the world's biggest economy sapped demand for the greenback, and another jump in dairy prices attracted support for the local currency.

The kiwi rose to 74.30 US cents at 5pm in Wellington from 74.12 cents at 8am and 73.16 cents yesterday. The trade-weighted index climbed to 78.51 from 77.77, well above the 76 average level the Reserve Bank has projected for the third quarter.

The US dollar index dropped after US services sector data fell to a seven-month low, raising questions about whether the Federal Reserve will persist with plans to raise interest rates this year. Meanwhile, whole milk powder prices at the latest GlobalDairyTrade auction rose to their highest level since October, giving investors confidence New Zealand's biggest export commodity is recovering.

"It's more a US dollar story than a New Zealand domestic one," said Mark Johnson, senior dealer foreign exchange at OMF in Wellington. "75 US cents might be doable in the short term, and if it gets into the top of the trend channel again that will complicate things for the Reserve Bank."

New Zealand's central bank has built in at least one more reduction in the 2 percent official cash rate as it tries to lift consumer prices which have been stagnant for almost two years, and has projected the cash rate could fall to about 1 percent if the currency doesn't depreciate.

The kiwi rose to 96.81 Australian cents from 95.92 cents yesterday after second-quarter gross domestic product missed expectations, growing 0.5 percent in the three months ended June.

The local currency fell to 75.36 yen from 75.82 yen and gained to 4.9536 Chinese yuan from 4.8878 yuan. It increased to 66.02 euro cents from 65.65 cents and advanced to 55.40 British pence from 54.94 pence.

New Zealand's two-year swap rate fell three basis points to 1.97 percent at 5pm in Wellington, and 10-year swaps declined five basis points to 2.39 percent.

BusinessDesk.co.nz

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