NZ dollar little changed as Fed decision, dairy auction loom

Monday 14th September 2015

The New Zealand dollar was little changed in local trading as the Federal Reserve's policy review looms large in investors' minds, and as the latest dairy auction is poised to show another increase in milk prices.

The kiwi traded at 63.12 US cents at 5pm in Wellington from 63.02 cents at 8am and 63.13 cents on Friday in New York. The trade-weighted index was little changed at 68.44 from 68.48 last week.

The Federal Open Market Committee meets this week and traders see an outside chance the world's biggest central bank will end its seven year run of a near-zero percent fed funds rate as the US economy continues to improve. If the Fed starts raising interest rates, that will underpin demand for the greenback, which has been in ascendancy over the past year as the central bank scaled back its asset purchase programme and signalled the return to normal monetary policy settings was in sight.

"The market's pricing in a 25 percent chance, but I think realistically it's 50/50 - every meeting's live," said Martin Rudings, senior dealer foreign exchange at OMF in Wellington. "We need to get some strength back into the US dollar - the kiwi looks like it wants to go down."

Before the Thursday announcement in Washington, traders will be watching the upcoming GlobalDairyTrade auction on Tuesday in the US, with futures pricing in a 10 percent to 12 percent rise in the price of whole milk powder. The global sump in milk prices has weighed on New Zealand's terms of trade, and the lower export receipts are expected to be a drag on the economy this year.

Second quarter balance of payments and gross domestic product data on Wednesday and Thursday are expected to show a widening current account deficit and a 0.6 percent expansion of GDP. The Reserve Bank cut the official cash rate a quarter point to 2.75 percent last week, and cut its projections for economic growth through to the third quarter of next year.

New Zealand's two year swap rate fell to 2.69 percent at 5pm in Wellington from 2.72 percent last week, and the 10-year swap slipped one basis point to 3.59 percent.

The kiwi rose to 89.08 Australian cents from 88.92 cents on Friday in New York after Chinese stocks fell in afternoon trading. A slowing Chinese economy is seen as weighing more heavily on Australia than New Zealand. The local currency was little changed at 4.0206 Chinese yuan from 4.0217 yuan last week.

The kiwi was almost unchanged at 55.65 euro cents from 55.64 cents on Friday in New York, and 40.88 British pence from 40.90 pence. It edged lower to 76.95 yen from 76.07 yen last week.

BusinessDesk.co.nz

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