Dollar falls as dairy prices extend decline

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The New Zealand dollar declined as dairy prices fell to their lowest in 18 months at Fonterra Cooperative Group's latest GlobalDairyTrade auction, raising concerns about the strength of the local economy.

The kiwi slipped to 87.52 US cents at 5pm in Wellington, from 87.71 cents at 8am and 87.67 at 5pm yesterday. The trade-weighted index edged lower to 81.14 from 81.25 yesterday.

The trade-weighted GDT price index fell 4.9 percent to US$3,595 a tonne, its ninth decline in the last 10 auctions and its lowest level since January 2013, while today's ANZ commodity price index declined for the fourth straight month in June, down 0.9 percent from last month and is now 6.7 percent below its February peak. Dairy is the nation's biggest export, making up 30 percent of New Zealand's annual exports. The lower dairy prices and elevated currency prompted the ANZ economists to downgrade their forecast for the 2015 payout to farmers, which they said would reduce dairy incomes by $3 billion in the season.

"New Zealand has high terms of trade, where our commodity prices are high and our currency is high, so we're selling our goods at their highest possible price," said Martin Rudings, senior dealer at OMF. "When the commodity prices slip there's an idea, or a reasoning, that the economy is not going to do as well so we're not going to earn as much and the currency doesn't deserve to be where it is."

The kiwi fell to 92.57 Australian cents from 92.75 cents yesterday, extending a decline after the Reserve Bank of Australia took a softer tone on the strength of its currency than analysts had been expecting. The Australian currency pared some of those gains after government data today showed a bigger than expected trade deficit.

"We had some weak Aussie data which turned the Aussie lower," OMF's Rudings said.

The kiwi slipped to 51.03 British pence at 5pm in Wellington from 51.24 pence yesterday. The local currency was little changed at 88.91 yen from 88.92 yen yesterday and 64 euro cents from 64.05 cents.

(BusinessDesk)


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