Dollar little changed below 70USc as investors eye dairy auction

The New Zealand dollar was little changed below 70USc ahead of the GlobalDairyTrade auction, which will set prices for milk powder and show whether there's any pick up in demand for the nation's biggest export commodity.

The kiwi traded at 69.88USc at 5pm in Wellington from 69.92USc at 8.30am and 62.12USc yesterday. The trade-weighted index was at 72.89 from 72.86 yesterday.

Dairy prices fell to a six-year low at Fonterra Cooperative Group's last online auction two weeks ago, and investors will be watching the upcoming event on Tuesday in the US to see whether there's any sign of recovery. Reserve Bank governor Graeme Wheeler last week said the slump in prices this year was weighing on the terms of trade and was one of the reasons why he cut the official cash rate a quarter-point to 3.25%.

"The market will watch it very closely – if it falls, the market will say the Reserve Bank's all about dairy and dairy is falling further, so they're going to cut more," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "That will feed into pricing for rates and the kiwi, conversely, if it bounces, it will also surprise people."

Traders are pricing in 36 basis points of cuts to the OCR over the coming 12 months, according to the Overnight Index Swap curve, implying there's an outside chance for a third reduction in the key rate.

New Zealand's two-year swap rate was 3.15% at 5pm in Wellington from 3.17% yesterday and the 10-year swap rate 4.00% from 4.02%.

The kiwi fell to 90.03Ac from 90.32Ac yesterday. Minutes to the Reserve Bank of Australia's last policy meeting released today showed a growing concern about a shortage of new housing, while assistant governor Guy Debelle said in a speech that Australian fund managers had relatively low investment in Asian markets.

The local currency gained to 4.3373 Chinese yuan from 4.3251 yuan yesterday, and advanced to ¥86.34 from ¥86.03.

The kiwi slipped to 61.94 euro cents from 62.12 cents yesterday as the stalemate between Greece and its European creditors over a €1.6 billion payment coming up at the end of the month raises the possibility the Mediterranean nation will default. The kiwi was little changed at 44.75 British pence from 44.83p yesterday.

(BusinessDesk)