Dollar gains as trade surplus delivers short-term fillip

The New Zealand dollar gained as a stronger-than-expected trade surplus gave the kiwi a short-term boost while traders mulled the prospects of a US Federal Reserve interest rate hike as soon as next month.

The kiwi rose to 67.56 US cents as at 5pm in Wellington, having climbed as high as 67.63 cents after the trade data, from 67.19 cents yesterday. The trade-weighted index rose to 72.84 from 72.48.

New Zealand posted a trade surplus of $292 million in April, more than the $60 million expected in a Reuters poll and up from $184 million a year earlier, as gold kiwifruit and apples drove up exports. The kiwi initially rose before shedding some of its gains but commodities will come back into focus tomorrow, when Fonterra Cooperative Group is expected to give its first forecast for the 2017 milk payout. In the wider foreign exchange market, the yuan fell after the Bank of China set the mid-point for the currency at the lowest level in five years and the US dollar index climbed to a two-month high on expectations a fed hike is a matter of when not if.

"There was an initial reaction to the trade balance which then dissipated," said Alex Hill, head of corporate foreign exchange at NZ Forex. There is "still fairly muted betting" on a Fed rate hike in June, which has a 34 percent chance, based on the overnight interest rate swaps market, rising to 54 percent in July and 80 percent by February next year. The prospects of two hikes by February is sitting at odds of 28 percent, he said.

NZ Forex sees a higher probability of a hike in June, rating it closer to a 45 percent prospect. The Fed "realises they have to, it is just a question of when," Hill said.

Traders don't expect fireworks in Budget 2016, released at 2pm in Wellington tomorrow, with Finance Minister Bill English promising a "solid, predictable budget". Ahead of that release, Fonterra may announce its opening forecast for the 2017 season tomorrow morning after the completion of a two-day board meeting. A BusinessDesk survey of analysts predicts a forecast payout of at least $4.43 per kilogram of milk solids, up from the current season's $3.90/kgMS.

​The local currency gained to 60.54 euro cents from 59.92 cents yesterday and fell to 46.19 British pence from 46.37 pence. The New Zealand dollar rose to 74.22 yen from 73.43 yen yesterday and increased to 4.4273 Chinese yuan from 4.4028 yuan. It gained to 93.68 Australian cents from 93.36 cents yesterday.

The two-year swap rate rose a basis point to 2.30 percent and the 10-year swaps rose 2 basis points to 2.91 percent.

(BusinessDesk)