Dollar heads for 0.8% weekly decline after Fonterra cuts payout, US GDP beats expectations

The New Zealand dollar is headed for a 0.8 percent weekly decline as more buoyant US data bolstered demand for the greenback and kiwi sentiment was dented by Fonterra Cooperative Group cutting its forecast payout and speculation that the central bank will make good on hints it will intervene in the currency market.

The kiwi slid to 84.95 US cents at 5pm in Wellington, from 85.60 cents at 8am on Monday and at levels above 88 cents last month. The trade-weighted index weakened to 79.71 from 79.90 on Monday.

While weaker commodity prices and intervention talk weighed on the kiwi locally, better data out of the US increased demand for the greenback. A report this week showed the US economy expanded at a 4 percent annual rate in the second quarter, beating the 3 percent expectation of economists in a Reuters poll and after shrinking 2.1 percent in the first quarter.

"There was a combination of good US data in the form of GDP and really bad domestic news. The New Zealand-US exchange rate is lower for those two reasons," said Peter Cavanaugh, senior adviser at Bancorp Treasury Services. "It ended last week on a negative note and it has simply been downhill traffic all the way."

Still, Cavanaugh said the kiwi is ending the week on a less negative note because of how far it has fallen in a short space of time. "So far it's been no more than a correction but it is straining the uptrend," he said.

While the Reserve Bank signalled a pause in its tightening cycle after raising the benchmark interest rate last week, rates are still expected to move higher in the future and the kiwi has retained buyer support around its 200-day moving average of 84.50 US cents.

Tonight, the focus is on US non-farm payrolls data, with economists in a Reuters poll expecting the world's largest economy added 233,000 jobs in July.

Given sentiment, currencies are more likely to react if the jobs number falls short, said Bancorp's Cavanaugh.

The New Zealand dollar advanced to 91.42 Australian cents from 91.24 cents at 5pm yesterday, was little changed at 63.46 euro cents from 63.48 cents, advanced to 50.34 British pence from 50.24 pence and gained to 87.44 yen from 87.37 yen.

(BusinessDesk)