NZ dollar falls on fears of slowing China; Fonterra auction

BUSINESSDESK: The New Zealand dollar fell after mining giant BHP Billiton warned China’s economic growth is cooling and dairy prices at Fonterra Cooperative Group’s online auction dropped to their lowest level in eight months.

The New Zealand dollar fell as low as 81.37 US cents overnight from 82.44 cents at 5pm yesterday. The kiwi traded at 81.66 at 8am in Wellington.

Commodity-linked currencies, such as the New Zealand and Australian dollars, fell after BHP, the world’s biggest mining company, said Chinese demand for iron ore was flattening. The comments damped demand for commodity-based assets amid fears the world’s second-biggest economy may be slowing down and its infrastructure build drawing to an end.

“Given the clear anecdotal evidence of a slowdown in their housing market also, profit taking on long commodity and currency positions is no surprise,” said Tim Kelleher, head of institutional FX sales NZ ASB Institutional, referring to trading bets that an asset appreciates over the long term. “It all adds up to some weaknesses in commodity currencies,” like the New Zealand dollar, he said.

The kiwi spiked lower immediately after Fonterra’s online auction, where the price of dairy products fell 4.5 percent to the lowest level in eight months amid concern demand for commodities may also be slowing with China’s growth outlook.

Investors had expected a decline in prices after the dairy exporter came under scrutiny earlier in the month when it cut its forecast payout to farmers.

New Zealand’s balance of payments for the fourth-quarter is set for release this morning and is tipped to show the current account deficit shrank to 4 percent of gross domestic product. Reserve Bank of New Zealand credit card billings is also scheduled for release this afternoon.

Analysts are picking slow but respectable economic growth when fourth-quarter GDP is released tomorrow. A Reuters’ surveys of 11 economists expect GDP to have grown 0.6 percent, slowing from a pace of 0.8 percent in the September quarter. The slowdown is attributed to a drop in manufacturing, offset by strong farming output and improving retail trade and construction.

In the UK, Chancellor of the Exchequer George Osborne will present the region’s budget on Wednesday and the Bank of England is scheduled to release the minutes from its March policy meeting on the same day.

The New Zealand dollar was little-changed at 77.93 Australian cents from 77.92 cents yesterday at 5pm. The kiwi fell to 61.74 euro cents from 62.28 cents and declined 51.47 to British pence from 51.93 pence.

It slipped to 68.36 yen from 68.77 yen yesterday. The trade-weighted index decreased to 72.89 from 73.38.