NZ dollar gains as futures market points to rising dairy auction prices

Monday 17th October 2016

The New Zealand dollar rose on expectations that dairy prices will gain at this week's GlobalDairyTrade auction, snapping two consecutive declines for the nation's biggest export commodity.

The kiwi rose to 71 US cents as at 5pm in Wellington from 70.84 cents in late New York trading on Friday. The trade-weighted index rose to 76.44 from 76.18.

NZX-traded dairy futures are pointing to an increase of about 7 percent in prices at the GDT auction tomorrow night, said Imre Speizer, senior market strategist at Westpac Banking Corp. The gains are supply related, with unfavourable weather denting milk production in the North Island, but they are enough to underpin the kiwi short-term in the face of a stronger greenback and a widely expected rate cut by the Reserve Bank next month, he said.

"We've had two disappointing auctions. Breaking that run would put the market back in optimistic mode again," Speizer said. "If we get that gain, we'll probably see a bit of a bounce in the kiwi."

Ahead of Tuesday night's dairy auction, Statistics New Zealand is due to release third-quarter inflation data tomorrow morning. The market expects a quarterly gain in the consumers price index of between zero and 0.2 percent. That's weaker than the Reserve Bank was projecting in its August monetary policy statement. RBNZ assistant governor John McDermott said last week that the bank's current assumptions "indicate that further policy easing will be required to ensure that future inflation settles" within the bank's 1 percent-to-3 percent target range. Traders have increased bets the bank will cut the official cash rate to 1.75 percent at its next MPS on Nov. 10.

The kiwi didn't move much after the BNZ-BusinessNZ performance of services index declined to a seasonally adjusted 54.1 in September from an eight-month high of 57.9 in August. That follows its manufacturing counterpart, the PMI, which rose to a seasonally adjusted 57.7 in September from 55.2 in August.

The kiwi dollar rose to 93.38 Australian cents from 93.06 cents. Westpac's Speizer said that may be driven by a decline in US equity futures including those for the S&P 500 Index, with the Aussie dollar tending to be more sensitive to movements in US stocks and global news per se than the kiwi.

The local dollar gained to 58.37 British pence from 58.10 pence on Friday in New York. It rose to 64.65 euro cents from 64.53 cents and climbed to 74 yen from 73.77 yen. It strengthened to 4.7802 yuan from 4.7652 yuan.

New Zealand's two-year swap rate rose 1 basis points to 2.04 percent, and 10-year swaps gained 4 points to 2.63 percent.

BusinessDesk.co.nz

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