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NZ dollar drops below 70 US cents as greenback rallies, dairy prices fall, jobs data looms

Wednesday 2nd May 2018

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The New Zealand dollar fell below 70 US cents for the first time this year as prospects of interest rate hikes in the US helped drive up the greenback, dairy prices fell and traders looked ahead to this morning's employment data.

The kiwi dollar traded at 69.96 US cents as at 8am in Wellington from 70.35 cents late yesterday. The trade-weighted index fell to 73.05 from 73.20.

The US dollar index rose 0.7 percent to its highest level since early January on optimism US economic growth and inflation are stirring enough to keep the Fed on track to keep raising rates this year. The Federal Open Market Committee is likely to keep rates on hold at this week's two-day meeting but is expected to indicated the pace of increases this year. Meanwhile, first-quarter labour market figures in New Zealand today are expected to show the jobless rate fell to 4.4 percent from 4.5 percent and employment growth quickened although with little sign of increased wages pressure.

"The USD continues to climb ahead of tomorrow morning's FOMC monetary policy statement," traders at HiFX said in a note. "The key driver for the NZD will be this morning’s quarterly employment report."

The kiwi dollar touched its overnight lows of about 69.91 US cents after dairy product prices fell at the Global Dairy Trade auction, led by declines in rennet casein and whole milk powder. The GDT price index slid 1.1 percent from the previous auction two weeks ago. Some 19,508 tonnes of product was sold, up from 19,262 tonnes two weeks ago. Whole milk powder fell 1.5 percent to US$3,231 a tonne. 

The greenback fell from its overnight highs after the ISM manufacturing report for April came in at 57.3, missing expectations of 58.5.

The Fed is widely expected to keep rates on hold but markets will closely scrutinise the statement for clues about how many times the central bank will hike this year, in particular after news the US March PCE inflation was in line with the Fed's target of 2 percent. The decision and the statement are due early Thursday New Zealand time. Markets have upgraded their forecast to four more hikes this year and any hawkish tone in the statement will add to that view, traders said.

The New Zealand dollar rose to 93.44 Australian cents from 93.27 cents yesterday, when the Reserve Bank of Australia kept the target cash rate at 1.5 percent and continued to signal no change any time soon. 

The kiwi traded at 58.32 euro cents from 58.26 cents and rose to 51.38 British pence from 51.14 pence. It fell to 76.82 yen from 76.95 yen and dropped to 4.4296 yuan from 4.4549 yuan.


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