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NZD gains as dairy prices draw investors

NZ NewswireNZ Newswire 8/09/2016 Jonathan Underhill

© Getty Images The New Zealand dollar rose, having climbed above 79 on a trade-weighted basis for the first time in 17 months, as the rebound in dairy prices and relatively high-interest rates, combined with softer data out of the US helped drive investors to the local currency.

The kiwi traded at 74.57 US cents as at 5pm in Wellington, having reached 74.79 cents overnight, the highest since May last year, from 74.30 cents late Wednesday. The trade-weighted index rose to 78.84 from 78.51 and reached 79.05 overnight or about 4 per cent above the average 76 level the Reserve Bank has projected for the third quarter.

Whole milk powder prices at the GlobalDairyTrade auction this week extended their rally to reach the highest level since October last year amid signs a global supply imbalance is easing.

Economists are expecting figures next week to show the economy accelerated in the second quarter, driven by a rebound in agriculture and continued strong construction activity, adding lustre to the New Zealand story but also building the case for the Reserve Bank to act quickly in cutting interest rates again.

"The kiwi has been strong across the board," said Michael Johnston, senior trader at HiFX.

Traders are betting governor Graeme Wheeler will wait until the next full monetary policy statement on Nov. 10 rather than cut the official cash rate a quarter point to 1.75 per cent at its review on Sept. 22.

The kiwi traded at 97.12 Australian cents from 96.81 cents when figures showed Australian second-quarter gross domestic product missed expectations, growing 0.5 per cent in the three months ended June. Johnston said the kiwi may also be gaining against its trans-Tasman counterpart on perceptions New Zealand's soft commodities are faring better on world markets than Australia's minerals such as iron ore and coal.

The New Zealand dollar advanced to 55.88 British pence from 55.40 pence and rose to 75.73 yen from 75.36 yen. It gained to 4.9721 yuan from 4.9536 yuan and increased to 66.30 euro cents from 66.02 cents.

New Zealand's two-year swap rate fell 1 basis point to 1.96 per cent at 5pm in Wellington, and 10-year swaps declined 1 basis points to 2.38 per cent.

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