Dollar gains as investors predict overnight bounce in dairy prices

The New Zealand dollar extended gains in local trading ahead of the overnight Tuesday GlobalDairyTrade auction, which is expected to see the first price rise for dairy commodities since early March.

The kiwi rose to 65.91 US cents at 5pm in Wellington from 65.66 cents at 8am and 65.38 cents yesterday. The trade-weighted index advanced to 71.07 from 70.31 yesterday.

Dairy futures contracts on the NZX suggest whole milk powder prices will rise at the GDT auction due to held early Wednesday morning local time, soothing fears about how far the value of New Zealand's biggest export commodity can fall. The slump in milk prices this year prompted Fonterra Cooperative Group to slash its forecast payout to farmers and spurred the Reserve Bank to start cutting interest rates in June.

"The expectations are that the dairy price auction tonight will show positive returns, but any positive return does have to be framed with the reference of a 25.9 percent decline over the past three," said Sam Tuck, senior foreign exchange strategist at ANZ Bank New Zealand. "The kiwi's being washed around in the range, but we're still expecting it to head lower. There's no change in that view."

Tuck said a 19 percent drop in Indonesian exports in July from the same period a year earlier, and a 28 percent import slump exemplified the growing weakness in some Asian economies and weighed on the New Zealand dollar. The kiwi jumped to 9119.18 Indonesian rupiah at 5pm in Wellington from 9012.63 rupiah yesterday.

New Zealand's two-year swap rate increased to 2.88 percent at 5pm in Wellington from 2.86 percent yesterday, and the 10-year swap slipped to 3.6 percent from 3.61 percent.

The local currency gained to 89.49 Australian cents from 88.64 cents yesterday after minutes from this month's Reserve Bank of Australia policy meeting showed a more upbeat assessment of the country's economy, with services, housing and investment offsetting subdued activity in some non-mining sectors.

The New Zealand dollar advanced to 4.2255 Chinese yuan from 4.1812 yuan yesterday, as traders pushed down the value of China's currency, even after the People's Bank of China set a firmer midpoint.

The local currency rose to 59.61 euro cents from 58.95 cents yesterday, and increased to 42.29 British pence from 41.78 pence. It advanced 82.09 yen from 81.31 yen.

(BusinessDesk)