NZ dollar gains ahead of dairy auction as Chinese PMI keeps traders nervous

Tuesday 1st September 2015

The New Zealand dollar recovered some of yesterday's decline ahead of the latest dairy products auction, which will likely show a lift in milk prices, while weak Chinese manufacturing data continued to keep traders nervous.

The local currency rose to 63.77 US cents at 5pm in Wellington from 63.33 cents at 8am, still down from 64.23 cents yesterday. The trade-weighted index fell to 68.93 from 69.50 yesterday.

Government data today showed the country's terms of trade rose 1.3 percent in the second quarter as a weaker currency helped boost exports in the period. The price for whole milk powder is expected to gain for a second event at the upcoming GlobalDairyTrade auction, providing some reprieve to investors nervous about the outlook for New Zealand's export sector.

Meanwhile, China's purchasing managers' index fell below 50 for the first time since February, keeping investors nervous about the strength of the world's second biggest economy, while Australia's central bank kept the target cash rate at a record-low 2 percent, and said monetary conditions needs to be accommodative to spur economic activity.

"Australia has a dark cloud hanging over it with the China debacle going on - that's the sharp end of China's western trade," said Martin Rudings, senior dealer foreign exchange at OMF in Wellington. "There's some optimism about the dairy auction tonight" which helped support the kiwi dollar, but that's "likely to be short-lived," he said.

The kiwi traded at 89.35 Australian cents at 5pm in Wellington from 89.44 cents immediately before the RBA release, and down from 89.84 cents yesterday, and fell to 4.0604 Chinese yuan from 4.0961 yuan yesterday.

Local data showed New Zealand property value rose at their fastest annual pace in eight years in August as the country's biggest city, Auckland, continued to push up the market where shortage of stock has been compounded by net inbound migration fuelling demand.

New Zealand's two-year swap rate was unchanged at 2.76 percent yesterday, and the 10-year swap fell 3 basis points to 3.55 percent.

The local currency dropped to 56.57 euro cents from 57.07 cents yesterday, and declined to 41.42 British pence from 41.62 pence. It sank to 77 yen from 77.76 yen yesterday.

BusinessDesk.co.nz

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