NZ dollar drops vs Australian dollar as RBA less stressed about currency; dairy auction looms

The New Zealand dollar fell against its transtasman counterpart after the Reserve Bank of Australia toned down its calls for a weaker Australian dollar, while data showed Australian retail sales were better than expected.

The kiwi fell to 89.27Ac from 90.02Ac immediately before the RBA announcement, and 90.26Ac yesterday. The kiwi was little changed at 65.62USc from 65.70USc yesterday, and down from 65.89USc yesterday.

The RBA kept the target cash rate at 2%, saying it will continue to monitor the economy and financial conditions for future decisions. Governor Glenn Stevens said "the Australian dollar is adjusting to significant declines in key commodity prices," having previously said further depreciation as both likely and necessary. That helped lift the Australian dollar to 73.46USc at 5pm from 72.91USc before the RBA announcement.

Bureau of Statistics figures showing June retail sales were stronger than expected also weighed on the kiwi/Aussie cross, as did ASX-listed power company Origin Energy's decision to sell its 53% stake in NZX-listed Contact Energy for $1.8 billion on the prospect of funds being repatriated across the Tasman.

"The key thing was the declining level of concern from the RBA on the value of the Australian dollar," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "That took the Aussie up a little bit and the kiwi/Aussie was a little bit lower."

Traders are watching tonight's GlobalDairyTrade auction and are already prepared for another decline in milk prices, ANZ's Mr Tuck said.

"They might get surprised if it's not as negative as they think it will be," he said.

Falling dairy prices and their impact on the nation's terms of trade spurred New Zealand's Reserve Bank to embark on looser monetary policy in June, and Fonterra Cooperative Group's board is expected to review its forecast payout to farmers on Friday.

The ANZ Commodity Price index sank 11% to a six-year low in June, led by the slump in dairy prices. In New Zealand dollar terms, the index was down 6.7%.

Also on traders' radars are second-quarter employment figures tomorrow, which will provide an update on whether wage inflation remains muted in the face of a workforce plumped up by rapid inbound migration.

The local currency fell to ¥81.35 at 5pm in Wellington from ¥81.72 yesterday, and declined to 4.0731 yuan from 4.0859 yuan. It was little changed at 59.95 euro cents from 60 cents yesterday, and traded at 42.07 British pence from 42.17p.

New Zealand's two-year swap rate declined to 2.84% from 2.87% yesterday, and the 10-year swap fell to 3.59% from 3.63%.

(BusinessDesk)