NZ dollar bounces from month-low as dairy auction deflates optimism over local outlook

Wednesday 4th October 2017

The New Zealand dollar recovered from a month-low after a surprise drop in dairy prices took the sheen off the local economic outlook, while data showed the housing market continued to slow down last month.

The kiwi rose to 71.80 US cents as at 5pm in Wellington from a low of 71.46 cents overnight and 71.62 cents yesterday. The trade-weighted index was little changed at 75.74 from 75.82.

Investors were surprised by 2.4 percent fall in the GDT price at the GlobalDairyTrade auction overnight after futures pricing had indicated a gain. The outcome prompted warnings from some economists that Fonterra Cooperative Group's forecast payout may be under risk, although robust growth, high terms of trade and a strong labour market still support the broader outlook relative to other developed economies. Local housing data today also showed the property market cooling in September with a sharp drop in the volume of sales in Auckland.

The auction "was a bit of a wake-up call to markets on top of clear signs of political uncertainty and the housing market that are dulling the brightness of the New Zealand economic story relative to others," said Phil Borkin, senior economist at ANZ Bank New Zealand in Auckland. "We tried to break through some pretty key support levels and didn't so we've bounced back up again through our trading session today."

Borkin said ANZ expects the kiwi dollar to fall a "little lower" over the medium term with the Reserve Bank "showing an absolute reluctance to lift rates" when other central banks are winding back stimulus.

New Zealand's two-year swap rate fell 2 basis points to 2.18 percent, and 10-year swaps dropped 4 basis points to 3.24 percent.

The Reserve Bank of Australia kept the target cash rate at 1.5 percent yesterday, and while it noted improving employment and investment, economists still don't see the RBA moving on rates until next year, earlier than New Zealand's central bank. The kiwi fell to 91.34 Australian cents from 91.81 cents yesterday.

The local currency traded at 54.13 British pence from 54.04 pence yesterday and dipped to 61.03 euro cents from 61.17 cents. It decreased to 80.90 yen from 81.01 yen yesterday and gained to 4.7791 Chinese yuan from 4.7651 yuan.

(BusinessDesk)

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