NZ dollar drops, taking 4-week decline to 5% as dairy falls, US jobs, Fed loom

Wednesday 8th March 2017

The New Zealand dollar fell, rounding out a four-week decline of about 5 percent that's been driven by expectations the Federal Reserve will raise interest rates next week while the Reserve Bank keeps its rate low. Dairy prices fell in the overnight auction, adding to weaker kiwi sentiment.

The kiwi dollar fell to 69.61 US cents as at 8am in Wellington, the lowest since early January, from 70.06 cents late yesterday. The trade-weighted index fell to 76.23, having earlier reached a five-month low of 76.21, from 76.63 yesterday.

The Federal Open Market Committee holds its next meeting on March 14-15 and officials at the bank, including chair Janet Yellen have indicated the US economy may have strengthened enough to warrant higher interest rates. That view will get an update this week with labour market data due out including the key non-farm payrolls figures for February, which are expected to show the US economy added 190,000 jobs last month, from 227,000 jobs in January.

"The US dollar and interest rates are slightly higher, markets looking ahead to the possibility of an upside surprise from Friday’s US payrolls report, which in turn would seal the case for a 15 March rate hike," said Imre Speizer, senior markets strategist at Westpac Banking Corp.

The kiwi extended its decline after dairy prices fell, as expected at the GlobalDairyTrade auction overnight. The GDT price index slid 6.3 percent from the previous auction two weeks ago to US$3,512. Some 22,328 tonnes of product was sold, up from 20,479 at the previous auction. Whole milk powder sank 12.4 percent to US$2,782 a tonne.

"While the pace of depreciation has slowed, the NZD is still attempting to test lower, and the weak details of the GDT auction are unlikely to help sentiment," said Philip Borkin, senior economist at ANZ Bank New Zealand. "For now, the NZD remains a ‘sell on rallies’, although the still well-performing domestic economy should limit the downside."

The New Zealand dollar fell to 91.68 Australian cents from 92.14 cents. The Reserve Bank of Australia kept its cash rate unchanged at 1.5 percent yesterday, as expected, and governor Philip Lowe said keeping borrowing costs unchanged "would be consistent with sustainable growth in the economy and achieving the inflation target over time."

The local currency fell to 57.03 British pence from 57.21 pence and slipped to 65.85 euro cents from 66.16 cents. It declined to 79.37 yen from 79.82 yen and fell to 4.7990 yuan from 4.8363 yuan.

BusinessDesk.co.nz

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