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Dollar declines as falling milk prices put auction in focus

The New Zealand dollar fell as increased focus on the upcoming Fonterra Co-operative Group [NZX: FCG] online dairy auction keeps the local currency under pressure.

The kiwi fell to 84.73 US cents from 84.98 cents yesterday. The trade-weighted index declined to 79.49 from 79.62.

Investors are awaiting the GlobalDairyTrade's event on Tuesday in the US for another gauge on the strength of New Zealand's biggest export commodity, which has underpinned the economic recovery in the past 18 months. Whole milk powder futures fell yesterday and analysts expect another decline in the auction price, which is at its lowest level since October 2012.

"A 2 percent fall would be near no fall, and that would be a positive - it would need a 5 percent or bigger fall to weigh on the kiwi," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "If we don't get too big a fall, the kiwi could grind a bit higher."

The Reserve Bank's survey of expectations this afternoon will be watched by traders looking for signs governor Graeme Wheeler may have to reassess his stance on monetary policy.

Westpac's Speizer said the kiwi is expected to continue its downward trend through the rest of the year, though may recover some lost ground after a sharp drop through July.

"Milk and a dovish Reserve Bank are the two big factors the kiwi," he said.

Speizer said the local currency may trade between 84.60 US cents and 85 cents today.

The government will today open its books in the pre-election economic and fiscal update, which will include the latest Treasury forecasts, and Statistics New Zealand separately will release the producers price index.

The local currency traded at 86.87 yen from 86.92 yen yesterday, and declined to 90.85 Australian cents from 91.11 cents. It was little changed at 63.41 euro cents from 63.42 cents yesterday, and edged down to 50.65 British pence from 50.78 pence.

(BusinessDesk)