Dollar little changed, may gain with dairy prices; long-term trend still down

The New Zealand dollar was little changed, with Tuesday night's dairy auction seen as a potential short-term fillip for a currency that will become less attractive as local interest rates fall and the US Federal Reserve hikes.

The kiwi was at 65.39 US cents at about 5:30pm in Wellington, from 65.32 from 65.36 cents at the New York close. The trade-weighted index was at 70.33 from 70.27 at the start of the day and 70.18 on Friday.

The Federal Reserve is expected to begin lifting interest rates from about zero in September, while on Sept. 10, the Reserve Bank of New Zealand may lower the official cash rate a quarter point to 2.75 percent. The Federal Open Market Committee releases minutes of its July meeting this week, which may indicate its willingness to hike.

"The dairy auction is the first thing on the agenda - dairy futures have rallied in the last few days," said Mark Johnson, senior dealer at OMF. "That's a bit of a positive for the kiwi in the short term."

Dairy futures imply a 15 percent gain in prices on the GlobalDairyTrade platform, but the bigger weight may be money flowing back to the greenback.

"There's a very strong likelihood of a September liftoff," Johnson said. "It would be the catalyst for the next leg down in kiwi-US." He said 64.70 US cents, last week's low, "is really the first port of call," but on a monthly chart the kiwi was headed for 62 cents.

The kiwi may trade between 64 US cents and 67.60 cents this week, according to a BusinessDesk survey of 10 currency advisers. Five expect the currency to gain, two say it may decline and three expect it to be little changed.

The New Zealand dollar rose to 88.65 Australian cents, from 88.49 cents at the start of the day and from 88.58 cents on Friday, ahead of the release of the Reserve Bank of Australia's minutes from its August meeting tomorrow. The local currency was little changed at 81.31 yen from 81.24 yen on Friday.

It rose to 58.92 euro cents from 58.54 cents on Friday after second-quarter gross domestic product in the euro area rose 0.3 percent, missing expectations for a 0.4 percent gain. The kiwi was little changed at 44.76 British pence from 41.84 pence on Friday. The kiwi traded at 4.1812 yuan from 4.1764 yuan late on Friday.

The two-year swap rate was little changed at 2.86 percent and 10-year swaps rose 2 basis points to 3.61 percent.

(BusinessDesk)