Dollar rises on lift in Chinese manufacturing, more gains seen for dairy

The New Zealand dollar rose after an official measure of manufacturing in China improved last month and traders bet next week's dairy auction will herald further gains in prices.

The kiwi rose to 64.08 US cents as at 5pm in Wellington, from 63.65 cents late yesterday. The trade-weighted index advanced to 69.82 from 69.42.

China's official Purchasing Managers' Index rose to 49.8 last month from 49.7 in August, and while still showing contraction below the 50 level was better than analysts had expected. The Australian dollar rose after the PMI was released, dragging the kiwi up with it on speculation demand in Australasia's biggest market isn't continuing to weaken. The local dollar has climbed almost 3 percent since Fonterra Cooperative Group raised its milk payout forecast a week ago.

"China having an upward move in the PMI just allows the market to put a bit of risk on," said Martin Rudings, senior dealer at OMF. "The kiwi has been quietly bid since Fonterra lifted its forecast and dairy futures imply a further 15 percent gain at the GlobalDairyTrade auction next week."

The GlobalDairyTrade price index has soared 48 percent over three events from its Aug. 4 low.

Rudings said signs of improvement in dairy prices "have taken some of the pressure off the Reserve Bank" to cut interest rates again. Figures about the US labour market this week culminate with non-farm payrolls on Friday, which aren't expected to be strong enough to precipitate a rate hike from the Federal Reserve this month, he said. The consensus is for a December move by the Fed, although the market is somewhat paralysed waiting for the hike to be done.

The kiwi gained to 57.54 euro cents from 56.58 cents and increased to 42.37 British pence from 42.02 pence yesterday. It was little changed at 90.87 Australian cents and gained to 77.10 yen from 76.34 yen yesterday. The local currency rose to 4.0760 yuan from 4.0489 yuan.

The two-year swap rate was unchanged at 2.68 percent and ten-year swaps rose about 3 basis points to 3.49 percent.

(BusinessDesk)