NZ dollar may extend decline vs. Australian dollar after dairy prices fall

Wednesday 18th November 2015

The New Zealand dollar may extend its decline against its Australian counterpart after milk product prices fell at the latest GlobalDairyTrade auction, putting more pressure on the Reserve Bank to cut interest rates.

The kiwi has dropped 3.9 percent against the Australian dollar since the start of the month, trading at 91.12 cents at 5pm in Wellington from 91.14 cents yesterday. It was little changed at 64.66 US cents from 64.67 cents at 8am and 64.58 cents yesterday.

The average winning GDT price fell 7.9 percent at the latest auction, prompting two banks to revise down their forecast payout to farmers for the current season. The decline was expected by analysts based on pricing in the milk futures market, and will add pressure to the central bank to further reduce the official cash rate in response to falling receipts for the country's biggest export. At the same time, Australia's Reserve Bank looks less likely to cut rates again after a surge in employment last month indicated that nation's economy was continuing to improve, even in the face of weak export commodity prices.

"Even though iron ore has fallen a lot over the last couple of months, dairy has underperformed iron ore," said Imre Speizer, senior market strategist at Westpac Banking Corp. "Last night's dairy auction just adds another piece of bad news for the kiwi (against the Australian dollar) and we expect that trend to continue."

Westpac's Speizer said he expects the local currency will break below 90.60 Australian cents in the next day or two.

New Zealand's two-year swap rate slipped one basis points to 2.72 percent at 5pm in Wellington, and 10-year swaps decreased two basis points to 3.58 percent.

The local currency edged up to 4.1269 Chinese yuan from 4.1166 yuan yesterday, and was little changed at 79.76 yen from 79.67 yen. It increased to 60.79 euro cents from 60.58 cents yesterday, and was almost unchanged at 42.54 British pence from 42.55 pence. The trade-weighted index was at 70.77 from 70.64 yesterday.

BusinessDesk.co.nz

Comments from our readers

No comments yet