Dollar sinks to 5-day low, may extend slide after drop in dairy prices

The New Zealand dollar fell to a five-day low, and may extend its decline, after dairy prices fell for the first time in five auctions on the GlobalDairyTrade platform.

The kiwi fell to 67.50 US cents as at 5pm in Wellington, from 68.07 cents late yesterday. The trade-weighted index declined to 72.35 from 72.94 yesterday.

Dairy product prices fell 3.1 percent overnight, based on the GDT Price Index and whole milk powder, the biggest product by volume, fell 4.6 percent. In the four previous auctions, the price index had risen to the highest since March. The impact of weaker prices on the kiwi probably won't last, because traders will start looking ahead to next week's Federal Open Market Committee meeting for clues to the timing of the US central bank's first interest rate hike.

"The dairy numbers were a catalyst for a bit of profit taking on the kiwi," said Mitchell McIntyre, senior corporate dealer at NZ Forex. "I think we will see it drift lower from here and it may re-test 67 US cents," having almost reached 69 cents last week.

McIntyre said he expects currency markets to "quieten down" heading into the FOMC meeting next week. Federal Reserve policymakers "will probably push out their expectations for hiking rates and we'll probably see quite a bit of US dollar weakness if that's the case". The Reserve Bank of New Zealand isn't expected to cut the official cash rate from 2.75 percent at its Oct. 29 meeting, even though governor Graeme Wheeler has flagged he has a 25 basis point cut up his sleeve.

The kiwi dollar didn't move much after government figures showed a record net migrant inflow of 61,200 in the September year, topping August's 60,300 new record.

"Net migration inflows remain at an extremely high level and are showing no sign of moderating," said Chris Tennent-Brown, senior economist at ASB Bank. "That strong inflow will support labour capacity, and contain wages. Housing demand will also remain supported by the inflows, particularly in Auckland."

The New Zealand dollar fell to 92.81 Australian cents from 93.71 cents yesterday, and fell to 59.40 euro cents from 60.04 cents. It declined to 43.69 British pence from 43.97 pence, dropped to 80.90 yen from 81.32 yen and fell to 4.2799 yuan from 4.3286 yuan.

The two-year swap rate rose two basis points to 2.75 percent and 10-year swaps increased four basis points to 3.55 percent.

(BusinessDesk)