Dollar drops on weak business sentiment, as dairy auction, Fonterra meeting loom

The New Zealand dollar fell after a survey showed deteriorating business confidence and may decline further with key event risks next week in the GlobalDairyTrade auction, labour market statistics and a Fonterra Cooperative Group board meeting.

The kiwi dollar fell to 65.88USc as at 5pm in Wellington, from 66.39USc late yesterday.The trade-weighted index fell to 70.31 from 70.74.

Business confidence fell to a six-year low this month, according to the ANZ Business Outlook, with construction firms and manufacturers becoming more gloomy and agricultural businesses remaining the most pessimistic. The survey adds to expectations the central bank will cut interest rates again this year in the face of weak dairy prices and deteriorating external position and after governor Graeme Wheeler said the bank remains in easing mode. With data showing an accelerating US economy, the greenback has been broadly stronger.

"Next week is a big week domestically with the dairy auction, employment data and Fonterra meeting – on all three the market is braced for negative news," said Robert Rennie, chief currency strategist at Westpac Banking Corp. "Traders have started to look into next week's event risk and that's seen the New Zealand dollar under-perform."

The dollar index, which measures the greenback against a basket of currencies, has climbed about 8% this year on optimism there's enough evidence of growth in the US economy, particularly the labour market, to allow the Federal Reserve to raise its benchmark rate from near zero as soon as September. US government figures overnight showed domestic product increased at a 2.3% annualised rate in the second quarter, up from a revised 0.6% pace of growth in the first quarter.

The local currency traded at 90.20Ac from 90.66Ac yesterday and dropped to 60.319 euro cents from 60.46 cents. It fell to 42.18 British pence from 42.54p and declined to ¥81.65 from ¥82.36. It was at 4.0904 yuan from 4.1194 yuan.

Two-year swaps held at 2.88% and five-year swaps at 3.16%.

(BusinessDesk)