Dollar heads for 0.4% weekly decline as falling dairy payout, rate hike view weighs

The New Zealand dollar is heading for a 0.4 percent weekly decline against the greenback after a cut in the forecast payout to local dairy farmers and growing expectations for a slower track of interest rate hikes saps demand for the kiwi.

The local currency fell to 85.06 US cents at 5pm in Wellington from 85.39 cents on Friday in New York last week. It traded at 84.71 cents at 8am and 84.80 cents yesterday. The trade-weighted index declined to 79.30 from 79.18 yesterday, and is heading for a 0.8 percent weekly drop.

A BusinessDesk survey of 10 traders and strategists on Monday predicted the local currency would trade between 84.30 US cents and 86.50 cents this week. Seven predicted the kiwi would fall this week, and three expected it to increase.

Investors are losing their ebullience over the strength of New Zealand's economic growth as falling dairy prices prompted Fonterra Cooperative Group to cut its forecast payout to farmers, and feeds into dwindling business confidence. The prospect of slower growth and tepid inflation has prompted traders to pare their bets on the Reserve Bank's interest rate track, and investors have priced in 75 basis points of increases over the coming 12 months, according to the Overnight Index Swap curve, down from 84 basis points a week ago. Governor Graeme Wheeler will review the official cash rate on June 12.

"There's a groundswell of opinion that the Reserve Bank is going to pause, we just need him to open his mouth," said Alex Hill, head of dealing at HiFX in Auckland. "The question remains for the weekend, can the kiwi settle below that 85.20 (US cents) level - if it closes above it's a false break."

Government figures showed New Zealand building consents fell a seasonally adjusted 5.2 percent in April as the public holidays slowed activity.

The local currency fell to 91.21 Australian cents from 91.37 cents yesterday as a reduced interest rate differential dents the attractiveness of the kiwi. Strong future capital expenditure intentions yesterday helped underpin support for the Australian currency, which also rallied on a weak US gross domestic product estimate.

New Zealand's currency gained to 86.39 yen at 5pm in Wellington from 86.25 yen yesterday, and advanced to 62.50 euro cents from 62.33 cents. It edged up to 50.81 British pence from 50.70 pence yesterday.

(BusinessDesk)