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Kiwi slides as Fed, dairy auction weigh

NZN 7/03/2017 Jonathan Underhill

The New Zealand dollar was hovering around US70c and may fall further on expectations the US Federal Reserve will hike interest rates while the New Zealand Reserve Bank stands pat and, in the short-term, dairy prices are seen tumbling at the auction overnight.

The kiwi dollar traded at US70.06c at 5pm in Wellington on Tuesday, having earlier fallen to 69.84c, the lowest since January 12, from 70.11c late Monday.

NZX dairy futures are pointing to a nine per cent decline in whole milk powder prices at Tuesday night's GlobalDairyTrade auction, in the second straight decline.

This comes after improved weather conditions prompted Fonterra to increase the amount of product it's offering in coming auctions on the GDT platform by about 25,000 tonnes, and global supply picked up.

The kiwi may extend its slide after the auction, having been weighed down by increased bets the Fed will hike this month while RBNZ governor Graeme Wheeler reiterated last week that local interest rates won't move any time soon.

"You've got the Fed, you've got Wheeler, you've got dairy prices, all weighing on the kiwi," said Imre Speizer, senior market strategist at Westpac.

Following comments from Fed chair Janet Yellen last week, the market is pricing in a 95 per cent chance of a Fed rate hike this month, which has helped push up the US dollar, Mr Speizer said.

The kiwi has fallen against most major currencies, though, as traders have looked at the dairy futures and "Wheeler's emphatic reminder" last week that the official cash rate "is not going anywhere for the next couple of years".

The New Zealand dollar fell to A92.14c, having earlier touched 92.07c, the lowest since May last year.

The local currency rose to 57.21 British pence from 57.05 pence and was at 66.16 euro cents from 66.09 cents. It was little changed at 79.82 yen from 79.79 yen and traded at 4.8363 yuan from 4.8336 yuan.

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