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Dollar drifts lower on sour milk auction

NZN 8/03/2017 Rebecca Howard

The New Zealand dollar drifted lower on Wednesday on a trade-weighed index basis after a tumble in global dairy prices weighed on sentiment.

The trade-weighted index fell to 76.18 as at 5pm versus 76.63 late Tuesday. The kiwi dollar fell to US69.63c from 70.06c.

In the overnight GlobalDairyTrade auction, the GDT price index slid 6.3 per cent from the previous auction two weeks ago to US$3,512 and whole milk powder sank 12.4 per cent to US$2,782 a tonne.

Adding to the negative sentiment, fourth quarter manufacturing data was softer than expected which means there is some downside risk to the fourth quarter gross domestic product data, due next week, said Bank of New Zealand currency strategist Jason Wong.

"The New Zealand dollar is pretty much out of favour at the moment. The dairy price dynamic is having some impact," he said.

The market had expected a weak auction but NZX dairy futures fell even further after the results, which weighed on the kiwi, Mr Wong said.

The weak futures point to another fall at the next auction "and the market is reacting to that. There's a lot of supply coming on to the market," he said.

Several economists pared back their forecasts for Fonterra's milk payout to its farmer-shareholders for the current season after the auction given higher-than-expected supply.

The New Zealand dollar fell to A91.59c from 92.14c. The kiwi continues to lose ground against the Aussie, which got a lift this week from upbeat comments by the Reserve Bank of Australia on the economy's outlook.

The local currency fell to 57.02 British pence from 57.21 pence and slipped to 65.89 euro cents from 66.16 cents. It declined to 79.15 yen from 79.82 yen and fell to 4.8041 yuan from 4.8363 yuan.

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