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NZ dollar gains vs Aussie as Australian economy shrinks

"The market was expecting a bad number"

Jonathan Underhill
Wed, 07 Dec 2016

The New Zealand dollar rose against its trans-tasman counterpart after figures showed the Australian economy shrank 0.5 percent last quarter, the first time it has contracted since 2011.

The kiwi dollar rose to 95.71 Australian cents from 95.26 cents immediately before the data was released, leaving the cross-rate little changed from 95.82 cents late yesterday. The kiwi dollar traded at 71.19 US cents, having earlier dipped below 70 cents, from 71.33 cents yesterday. The trade-weighted index was at 78.17 from 78.20.

The Australian dollar shed almost half a US cent after government figures showed the economy shrank more than the 0.1 percent expected by economists. Still, the selloff only takes the Aussie back to where it started the week and it failed to drag the kiwi down with it.

"We've seen some buying of the kiwi versus the Australian on the cross rate," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. "The market was expecting a bad number," adding that the market reaction was kept in check because traders believe the Reserve Bank of Australia remains on hold after keeping its key rate unchanged yesterday.

The kiwi didn't react much to results from the GlobalDairyTrade auction overnight which showed the price of whole milk powder climbed 4.9 percent to US$3,593 a tonne, meeting expectations as the total volume of dairy products sold on the platform fell to 22,472 tonnes from 23,902 tonnes at the previous auction. Bank economists lifted their forecasts for Fonterra Cooperative Group's farmgate milk price payout this season to be between $6 and $6.50 per kilogram of milk solids.

Reserve Bank governor Graeme Wheeler avoided saying anything market moving when he appeared before a select committee to address the central bank's annual report. The government releases its Half Year Fiscal and Economic Update, which will include the Treasury's updated fiscal and economic projections, tomorrow.

The kiwi traded at 66.41 euro cents from 66.44 cents late yesterday. It fell to 4.9051 yuan from 4.9115 yuan, was down at 81.24 yen from 81.36 yen and traded at 56.26 British pence from 56.11 pence.

The two-year swap rate fell 1 basis point to 2.22 percent and the 10-year swap rate was unchanged at 3.33 percent.


Jonathan Underhill
Wed, 07 Dec 2016
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NZ dollar gains vs Aussie as Australian economy shrinks