Dollar falls to 3-month low after dairy prices drop in Fonterra auction
The New Zealand dollar touched a fresh three-month low following a drop in dairy prices at Fonterra Cooperative Group's latest GlobalDairyTrade auction, making it the worst performing major currency overnight.
The kiwi touched 84.15 US cents, its lowest since March 6, and was trading at 84.27 cents at 8am in Wellington, from 84.59 cents at 5pm yesterday. The trade-weighted index weakened to 78.78 from 79.10 yesterday.
Dairy product prices slid 4.2 percent to the lowest level since February 2013 in the latest fortnightly auction, marking the eighth consecutive decline as volumes increased.
Whole milk powder prices posted an unexpectedly sharp 8.5 percent drop while skim milk powder and cheddar prices rose. Reserve Bank governor Graeme Wheeler told the DairyNZ Farmers’ Forum in Hamilton last month that the currency shouldn't remain high as export prices fell and that increases in the official cash rate may not be as regular as previously assumed if the exchange rate remains strong.
"You don't often see such a strong response to the milk auction, in this case it was very very clear," said Imre Speizer, senior market strategist at Westpac Banking Corp. in Auckland. "A lower milk price without a fall in the currency would cause the Reserve Bank to downgrade its OCR outlook."
Speizer said the kiwi's recent break below 85.30 US cents meant it was now on its way to the 83-84 US cent level.
"It is going to keep going lower," he said. Today, the focus will be on the latest ANZ commodity price index scheduled for release at 1pm and quarterly building work survey data from Statistics NZ at 10:45am.
The New Zealand dollar touched a six-month low of 90.87 Australian cents and was trading at 90.95 cents at 8am from 91.25 cents at 5pm yesterday ahead of data on Australian first quarter growth at 1:30pm New Zealand time. Westpac expects the Australian economy expanded 1.1 percent in the quarter.
The kiwi fell to 61.86 euro cents from 62.17 cents yesterday ahead of tomorrow's European Central Bank meeting where monetary policy is expected to be loosened.
The local currency weakened to 50.27 British pence from 50.50 pence yesterday and dropped to 86.39 yen from 86.55 yen.