Dollar falls on Wheeler's argument for weaker currency, Fed's labour market view

The New Zealand dollar fell as a combination of Reserve Bank governor Graeme Wheeler's message that the currency needs to depreciate and a more optimistic US labour market view from the Federal Reserve weighed on the local currency.

The kiwi declined to 66.39USc at 5pm in Wellington from 66.62USc at 8am and 66.98USc yesterday. The trade-weighted index dropped to 70.74 from 71.31.

The local currency continued its decline from yesterday after Mr Wheeler said the kiwi was too high given the deteriorating outlook for New Zealand's external accounts, with slumping milk prices weighing on the nation's biggest exported commodity. At the same time, the greenback got a boost from a favourable assessment of the American labour market by the Federal Open Market Committee, though traders are still unsure whether the Fed will hike interest rates at the September meeting.

"The market came to terms with the glass half-full speech and continuing underlying message on the currency that further depreciation is necessary and fundamental factors will drive it," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "The kiwi's been under pressure all day."

Fonterra Cooperative Group today announced it will reduce supply at next week's GlobalDairyTrade auction, which has been keenly watched as falling dairy prices weigh on New Zealand's terms of trade.

The first reading for second-quarter US gross domestic product will also be watched by traders, with the recovery in the world's largest economy expected to keep supporting the greenback.

New Zealand government data today showed a slowdown in new building consents in July as increasing construction intentions in Auckland failed to offset declines in Canterbury, where earthquake reconstruction effort has peaked.

The local currency sank to 90.66Ac at 5pm in Wellington from 91.53Ac yesterday, and dropped to 4.1219 Chinese yuan from 4.1585 yuan. It decreased to 60.46 euro cents from 60.58 cents yesterday and fell to 42.54 British pence from 42.92p. The kiwi declined to ¥82.36 from ¥82.68 yesterday.

New Zealand's two-year swap rate edged up to 2.91% from 2.9%, and the 10-year swap gained to 3.73% from 3.66%.

(BusinessDesk)