Dollar may push higher as Fed rate hike seems less likely, dairy futures climb

The New Zealand dollar may push higher after minutes to the last Federal Reserve policy meeting eroded investors' expectations for a US interest rate hike next month, and as dairy futures indicate another strong gain in the price of whole milk powder, the nation's major export commodity.

The kiwi traded at 66.14 US cents from 66.08 cents at 8am and up from 65.79 cents yesterday. The trade-weighted index advanced to 71.16 from 70.95 yesterday.

Minutes to the Federal Open Market Committee's July meeting indicated policy makers were cooler on a September rate with most of the members judging economic conditions didn't warrant a move from the near-zero level the fed funds rate has been sitting at since the global financial crisis. That weighed on the US dollar, while a 17 percent increase in contracts for the first month for NZX dairy futures indicated whole milk prices are snapping back after a series of sharp declines, which would support New Zealand's biggest export sector.

Dairy futures "are approaching a 50 percent rally in two-and-a-half weeks," said Graham Parlance, senior dealer at OMF. "With the Fed being softer and these dairy futures being very strong, we think the path of least resistance for the kiwi is to the topside at the moment."

OMF's Parlance said the kiwi will probably "wash around the range with a bias to the topside" until the Fed and Reserve Bank of New Zealand policy meetings next month.

New Zealand's two-year swap rate dropped to 2.84 percent at 5pm in Wellington from 2.88 percent yesterday, and the 10-year swap fell to 3.56 percent from 3.63 percent.

Local consumer confidence fell for a fourth month in an ANZ Roy Morgan poll, which showed household sentiment was at a four-year low.

The kiwi dollar increased to 4.2243 Chinese yuan from 4.2109 yuan yesterday, and edged up to 89.97 Australian cents from 89.87 cents. It slipped to 59.39 euro cents from 59.55 cents yesterday, and increased to 42.17 British pence from 42 pence. The local currency gained to 81.97 yen from 81.78 yen yesterday.

(BusinessDesk)