Kiwi recovers after GDT auction as fears over Fonterra recede

The New Zealand dollar recovered more ground as fears of weaker exports and lower payouts to farmers receded after a food contamination scare at Fonterra, the nation's largest company.

The kiwi rose to 78.98 US cents at 8am in Wellington from 78.51 cents at the 5pm market close. The trade-weighted index advanced to 74.67 from 74.37 yesterday.

The kiwi this morning increased above 79 US cents, returning to the levels it traded at before Fonterra said on Saturday it had found bacteria which can cause botulism in some of its dairy products.

Traders watching Fonterra's regular GlobalDairyTrade auction this morning said the 2.4 percent modest fall in prices was well within normal volatility, suggesting the food contamination scare will not weigh too heavily on milk prices for farmers.

"The kiwi has been the strongest performing currency overnight, most of it is driven off receding fears about New Zealand dairy exporters," says Mike Jones, currency strategist at Bank of New Zealand.

"We saw a positive dairy auction this morning and that has further restored confidence in New Zealand dairy and the kiwi dollar has crept higher as a result."

Fears of the potential impact on New Zealand exports saw the local currency weaken on Monday to a one-month low of 76.99 US cents.

"The dairy story has been the main one buffeting the kiwi this week," Mr Jones says. "It's that dairy auction this morning that has provided the juice for the rally in the kiwi."

Looking ahead today, traders will be eyeing jobs data at 10.45am for signs of how the local economy is tracking. A decline in the first quarter unemployment rate close to 6 percent would probably further underpin the kiwi, he says.

BNZ expects the unemployment rate to have ticked down to 6.1 percent from 6.2 percent, while economists in a Reuters poll picked 6.3 percent.

"These job numbers are one of the bigger movers on the local scene for the currency," Mr Jones says. "They can be very volatile and hence illicit big reactions."

The kiwi advanced to 87.86 Australian cents at 8am in Wellington from 87.47 cents at the 5pm market close after the Reserve Bank of Australia yesterday cut its benchmark interest rate a quarter point to 2.5 percent to help stoke a slowing economy.

The move highlighted the divergent economies after New Zealand central bank governor Graeme Wheeler indicated the next move in local rates is up.

Reserve Bank of Australia assistant governor (financial markets) Guy Debelle is speaking as part of a panel today at the Funding Australia's Future Forum in Sydney. That is unlikely to focus on policy, and Friday's Statement on Monetary Policy with its formal forecasts on growth and inflation is the next key event, Mr Jones says.

The kiwi edged up to 77.17 yen from 77.11 yen yesterday and rose to 59.33 euro cents from 59.18 cents. It advanced to 51.45 British pence from 51.13 pence.

(BusinessDesk)