NZ dollar climbs after weak US CPI, strong dairy auction; FOMC looms

Wednesday 17th August 2016

The New Zealand dollar climbed after figures showed the US consumer price index was flat last month while the price of whole milk powder jumped to a 10-month high overnight.

The kiwi rose to 72.52 US cents at 5pm in Wellington, from 72.26 cents yesterday. The trade-weighted index advanced to 76.68 from 76.07 yesterday.

The US Department of Labor's CPI measure showed no change for July, in line with forecasts but still underlining how far the Federal Reserve is from achieving its inflation target of 2 percent to 2.5 percent. That dented sentiment for the greenback although it did find some support after New York Fed president William Dudley said the market had become complacent about the need to lift interest rates. Meanwhile, whole milk powder, the biggest dairy product by volume that Fonterra Cooperative Group sells, jumped 19 percent to US$2,695 a tonne, adding to a 10 percent gain two weeks ago.

"The kiwi has been resilient in the face of bad news and benefitted from good news," said Mitchell McIntyre, senior corporate FX dealer at NZForex. "There's a good chance it's going to test higher."

Traders are now awaiting the release of the minutes of the last Federal Open Market Committee meeting, due out 6am NZ time tomorrow morning. While traders don't expect any surprises the greenback would likely gain if the minutes show the Fed is slightly more hawkish than expected about raising interest rates, McIntyre said.

"I don't think we're going to see a hike out of them anytime soon," he said. Still, there's a lot of event risk around the release of the minutes.

The kiwi briefly spiked higher after government figures showed the jobless rate fell to 5.1 percent in the second quarter from a revised 5.2 percent three months earlier. However, the improvement was complicated by a change in the way Statistics New Zealand measures the labour market to bring the country in line with international practices.

Today's data is likely to be partially discounted due to the methodology changes," said Zoe Wallis, senior economist at Kiwibank. "While we believe the underlying story is one of employment growth rising, the headline employment number is overstated due to methodology changes." The data was unlikely to have a material impact on the Reserve Bank's view.

The local currency rose to 94.54 Australian cents from 94.05 cents yesterday and increased to 73.14 yen from 72.59 yen. It slipped to 64.37 euro cents from 64.54 cents and dropped to 55.67 British pence from 56 pence. The kiwi rose to 4.8087 Chinese yuan from 4.6954 yuan yesterday.

New Zealand's two-year swap rate rose 4 basis points to 1.95 percent and 10-year swaps rose 4 basis points to 2.39 percent.

BusinessDesk.co.nz

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