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NZ dollar gains to 3-week high vs. Aussie on RBA rate cut; dairy auction looms

Tuesday 2nd August 2016

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The New Zealand dollar rose to a new three-week high against the Australian dollar after the Reserve Bank of Australia cut its cash rate to a record low 1.5 percent in the face of subdued inflation.

The New Zealand dollar traded at 95.52 Australian cents at 5pm in Wellington, having gained to as high as 95.67 cents immediately after the RBA statement, from 94.91 cents late yesterday. The kiwi fell to 71.86 US cents from 72.23 cents yesterday.

RBA governor Glenn Stevens announced a quarter-point cut to the cash rate, saying inflation was "quite low" and  "is expected to remain the case for some time." He didn't hint at any further easing. The cut opens up a gap with the Reserve Bank of New Zealand's benchmark rate at 2.25 percent, which the market is expecting will be cut with the monetary policy statement on Aug. 11.

"The RBA cut as we thought they would, but they didn't signal anything," said Imre Speizer, senior market strategist at Westpac Banking Corp. A rate cut by the RBNZ next week "is 100 percent priced in - the question is what's after that? Are we stopping at 2 percent or going to 1.75 or 1.5?"

Ahead of next week, US non-farm payrolls are due out on Friday in the US, which may provide more of a sense of any rate hikes by the Federal Reserve, which last week signalled it was in no hurry to tighten policy. However, William Dudley, president of the New York Fed, said on Monday that investors may be underestimating the number of times the central bank is prepared to hike rates this year and next.

Tonight, the GlobalDairyTrade auction will provide the latest data on global dairy prices, which determine returns for NewZealand's largest commodity export.

Yesterday, Fonterra Cooperative Group kept its forecast farmgate milk price unchanged at $4.25 per kilogram of milk solids, for a total payout of $4.75 to $4.85 once projected dividends are included. That's below the breakeven for many farmers although not by such a margin, as DairyNZ today revised down its anticipated breakeven price for the average farmer to $5.05 per kilogram of milk solids for the current season from $5.25 for 2015/16.

"The (dairy) futures are predicting a 10 percent rise - that's the biggest rise predicted since March," Speizer said. "The futures market is looking confident we'll get a bounce, so that should give kiwi a bit of a bounce also."

The kiwi didn't move much after QV figures showed New Zealand residential property values rose at the fastest quarterly rate in 12 years in the three months through July, with the national average value of a house now topping $600,000.

The trade-weighted index fell to 76.46 from 76.61 yesterday. The kiwi fell to 73.58 yen from 73.89 yen and declined to 4.7734 yuan from 4.7893 yuan. It fell to 64.25 euro cents from 64.60 cents and was little changed at 54.44 British pence from 54.50 pence.

New Zealand's two-year swap rate rose 1 basis point to 2.02 percent and the 10-year swaps were unchanged at 2.42 percent.

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