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NZ dollar little changed before dairy auction as futures fall, traders await May speech

Tuesday 17th January 2017

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The New Zealand dollar was little changed, with no tail wind from US financial markets closed for the Martin Luther King Jr holiday, in the run-up to a dairy auction that has seen milk powder futures fall and a Brexit speech by UK Prime Minister Theresa May.

The kiwi traded at 71.14 US cents as at 5pm in Wellington, from 70.89 cents late yesterday. The kiwi dollar traded at 59.00 British pence from 58.98 pence late yesterday.

OMF senior dealer Mark Johnson said there has been "selling across the curve for whole milk powder contracts", which trade on the NZX. Futures were pointing to a 2 percent gain in tonight's auction at the start of the day but had since retreated "closer to flat", he said.

"That could be partially weighing on the kiwi," Johnson said. More broadly, currency markets were in a holding pattern before May's Brexit statement, which is seen as a big event risk, given her intent is to quit the EU and regain control of Britain's borders and laws. "But it's a big unknown how things could unravel."

May is scheduled to deliver a speech on Tuesday in the UK which the Sunday Times reported will spell out her commitment to leaving the European Union, a move that many economists say will hurt the UK economy. 

As well as May's speech and the dairy auction, this week Federal Reserve chair Janet Yellen is scheduled to speak at the Davos economic summit, the European Central Bank releases its latest policy review and Donald Trump is to be inaugurated as president on Friday in the US.

Trump's blunt comments on his Twitter feed have left financial markets confused about his policy intentions, whether they can be achieved and over what time, Johnson said.

The kiwi didn't move much after Institute of Economic Research's quarterly survey of business opinion showed a seasonally adjusted net 26 percent of firms expect general business conditions to improve in the coming 12 months, down from 28 percent in the September period. At the same time, more firms saw scope to push through price increases. The survey comes before next week's release of the consumers price index for the fourth quarter, which the Reserve Bank has forecast will show an annual inflation rate of 1.1 percent - back within the bank's target band for the first time in about two years.

Separately, figures from the Real Estate Institute showed the median house price slipped in December from its record high the previous month while the volume of sales fell.

The trade-weighted index rose to 78.35 from 78.07. The kiwi traded at 95.07 Australian cents from 94.86 cents late yesterday. It rose to 4.9104 yuan from 4.8882 yuan and traded at 66.97 euro cents from 66.80 cents. The kiwi rose to 81.13 yen from 80.92 yen yesterday. 

New Zealand's two-year swap rate rose 3 basis points to 2.38 percent, while the 10-year swap rate rose 1 basis point to 3.36.

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