NZ dollar hits month high after weaker US data, stronger GlobalDairyTrade auction

Wednesday 2nd December 2015

The New Zealand dollar jumped to a month high after weaker US data and a stronger GlobalDairyTrade auction turned investors off the greenback and into the kiwi and as higher yielding currencies remain in demand.

The kiwi touched 66.82 US cents, and was trading at 66.75 cents at 8am in Wellington, from 66.20 cents at 5pm yesterday. The trade-weighted index advanced to 72.43 from 71.99 yesterday.

Heading into the Christmas trading lull, investors are favouring currencies with higher interest rates such as the New Zealand dollar, where the benchmark is at 2.75 percent, compared with near-zero rates in Europe, the US and Japan. Also weighing on the greenback, US data released overnight showed the manufacturing sector contracted in November, falling to its weakest level since June 2009, prompting some traders to pull back their bets for US dollar gains. Meanwhile supporting the kiwi, the latest GDT auction overnight saw a rise in dairy product prices following three consecutive declines, bolstering optimism about the outlook for New Zealand's largest commodity export.

The kiwi "is absolutely surging forward", said Stuart Ive, senior dealer, foreign exchange, at OMF. "People are unwinding some of that US dollar risk, they are posting some money with the high yielders over the Christmas period and hence the strong move in the kiwi."

The GDT auction saw average dairy prices rise 3.6 percent while whole milk powder prices increased 5.3 percent. That added some doubt as to whether the Reserve Bank of New Zealand will cut interest rates next week, Ive said.

In contrast, weaker US data and comments by Chicago Federal Reserve president Charles Evans that he would like to have more confidence about rising inflation before raising US interest rates, and that he favours a gradual pace of increases weighed on the greenback, Ive said.

"I still think the Fed will hike this month but the path forward may not be as rosy as some had previously thought and this is leading to what has been a very heavily populated trade of long US dollars, people are exiting, just unwinding risk, and that's what we are seeing with the kiwi," Ive said. Fed chair Janet Yellen is due to speak today.

Today, the local currency has support at 66.40 US cents and faces resistance at 67.10 cents, Ive said. The kiwi could advance to 68 US cents, he said.

The New Zealand dollar was little changed at 91.04 Australian cents from 91.07 cents yesterday ahead of the release of Australian third-quarter gross domestic product.

The local currency advanced to 62.78 euro cents, from 62.56 cents yesterday, gained to 44.24 British pence from 43.88 pence, rose to 81.96 yen from 81.32 yen, and increased to 4.2710 yuan from 4.2357 yuan.

BusinessDesk.co.nz

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