NZ dollar falls on soft jobs data, slumping milk prices

Wednesday 5th August 2015

The New Zealand dollar fell as soft employment data and a slump in dairy prices reinforced expectations the Reserve Bank will continue to lower the official cash rate, while comments from a US Federal Reserve official firmed up the prospect for higher interest rates in the US.

The kiwi declined to 65.22 US cents at 5pm in Wellington from 65.33 cents at 8am and 65.63 cents yesterday. The trade-weighted index dropped to 69.67 from 69.96 yesterday.

Traders are pricing in a 78 percent chance the Reserve Bank will cut the OCR by 25 basis points at the Sept. 10 meeting after government data showed New Zealand's unemployment rate rose to 5.9 percent in the June quarter as employment growth lagged behind an expanding working population and wage inflation remained muted. A further slump in milk prices at the last night's GlobalDairyTrade auction is expected to see Fonterra Cooperative Group cut its forecast payout to farmers, weighing on the nation's export sector, after a board meeting on Friday.

The resurgence of the greenback has also put pressure on the kiwi as investors prepare for the Fed to move away from the exceptionally low rates it's been running since 2008. Federal Reserve Bank of Atlanta president Dennis Lockhart yesterday said it would take a significant deterioration in economic data to convince him increases weren't appropriate next month. US non-farm payrolls data for July, due Friday, will be keenly watched to gauge the strength of the world's biggest economy.

"If it (non-farm payrolls) comes in as expected or better, we'll certainly see those expectations in the US for rate hikes nudge a little bit higher," said Stuart Ive, senior foreign exchange dealer at OMF in Wellington. "The kiwi remains under pressure. It hasn't raced away and has now somewhat consolidated after the big news overnight."

New Zealand's two-year swap rates edged down half a basis point to 2.835 percent at 5pm in Wellington from yesterday, and the 10-year swap rose to 3.6375 percent from 3.59 percent.

The kiwi dropped to 88.69 Australian cents from 89.20 cents yesterday after the Reserve Bank of Australia yesterday kept interest rates on hold and toned its jawboning for a lower currency.

OMF's Ive said the RBA is now less likely to cut rates again and if the central bank's monetary policy statement release on Friday shows it to be even clearer on the outlook, then the kiwi will likely fall further against the Australian dollar.

The local currency declined to 4.0506 Chinese yuan from 4.0731 yuan yesterday, and decreased to 81.15 yen from 81.31 yen. It was little changed at 60.03 euro cents from 59.92 cents yesterday, and traded at 41.96 British pence from 42.04 pence.

BusinessDesk.co.nz

Comments from our readers

No comments yet