Dollar gains vs. Australian dollar as commodity prices tumble, China equities weigh

The New Zealand dollar gained against its trans-Tasman counterpart as falling commodity prices and plunging Chinese stock markets weighed more heavily on Australia.

The kiwi rose to 89.59 Australian cents at 5pm in Wellington from 88.97 cents yesterday. The local currency was little changed at 66.41 US cents from 66.52 cents at 8am and down from 66.61 cents yesterday.

China iron ore futures fell more than 8 percent, reaching a record low on the Dalian Commodity Exchange, eroding profitability for one of Australia's biggest exports. The Thompson Reuters/Core Commodity CRB Index fell 1.1 percent to a three-month low as increased volatility in financial markets saps investors' appetite for risk-sensitive assets. A 29 percent slump on the Shanghai Composite Index over the past month has raised concerns about China's ability to buy Australian goods.

"It's more a commodity story that's impacting currencies,"said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. Australian is "a lot more aligned with China and commodities than we are, and I'd imagine the kiwi/Aussie cross can continue to grind up."

The Reserve Bank of Australia yesterday kept the target cash rate at a record low 2.5 percent, saying "monetary policy needs to be accommodative" as growth remains below trend.

Traders will be watching for minutes to the last Federal Open Market Committee meeting for any signs as to when the Federal Reserve will start raising interest rates, while any headlines on the negotiations between Greece and its creditors will also attract attention.

Kelleher said currency markets have moved more than equity or interest rate markets, and the kiwi may struggle to push much lower. Next week's GlobalDairyTrade auction will be monitored to see how global milk prices are tracking, with futures pointing to a 10 percent decline, while second-quarter inflation data and the Reserve Bank's July 23 policy review are also on the radar.

Traders are pricing in a 96 percent chance governor Graeme Wheeler will cut the 3.25 percent official cash rate at the review, according to the Overnight Index Swap curve.

New Zealand's two-year swap rate decreased to 2.91 percent at 5pm in Wellington from 2.94 percent yesterday, and the 10-year swap rate dropped to 3.71 percent from 3.82 percent.

The local currency fell to 4.1246 Chinese yuan from 4.1361 yuan yesterday, and sank to 81.04 yen from 81.70 yen. The kiwi was little changed at 60.33 euro cents from 60.38 cents yesterday, and gained to 43.01 British pence from 42.72 pence. The trade-weighted index was unchanged at 70.29 from the same time yesterday.

(BusinessDesk)