Dollar slips vs Aust on strong China growth; dairy auction looms

The New Zealand dollar slipped against its transtasman counterpart after official data showed China's economy grew more than expected in the second quarter, to the potential benefit of Australia's economy, which is more exposed to the world's most populous nation.

The kiwi fell to 89.76Ac at 5pm in Wellington from 89.86Ac yesterday. The local currency was little changed at 67.03USc from 67.04USc at 8am, and up from 66.73USc yesterday.

China's gross domestic product expanded at a 7% annual pace in the three months ended June 30, according to official statistics, eclipsing the 6.8% growth predicted by economists. That helped allay some concerns about Australia's export outlook and fuelled demand for the Aussie dollar. Plunging Chinese stock markets have been stoking fears about the strength of the world's second biggest economy, and the Shanghai Composite Index fell 2.4% in afternoon trading. The local currency gained to 4.1616 yuan from 4.1427 yuan yesterday.

The Chinese data comes ahead of Fonterra Cooperative Group's GlobalDairyTrade auction overnight, which will probably show another decline in international whole milk powder prices. The plunge in dairy prices and its impact on New Zealand's terms of trade was cited as one of the reasons why the Reserve Bank began cutting interest rates in June.

"The Aussie rallied on the better Chinese data and that's why we've seen the kiwi/Aussie sell-off," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "The kiwi's direction depends on the dairy auction. If we get a poor number and the currency doesn't go below 66.50USc, then we could get a short covering rally."

Traders are betting there is a 92% chance the Reserve Bank will cut the 3.25% official cash rate when it reviews policy next week. Second-quarter inflation figures tomorrow will be watched for a steer on more aggressive easing.

New Zealand's two-year swap rate edged down to 2.98% at 5pm in Wellington from 3% yesterday, and the 10-year swap rate decreased to 3.88% from 3.9%.

Greece's parliamentary vote on whether to adopt austerity measures imposed by European leaders in return for a bailout package is also on the radar. Unless "something really dramatic happens," such as rejection of the bailout agreement, HiFX senior dealer John Chisholm expects the kiwi will trade between the low 66s and mid-67s against the US dollar.

US economic data including producer prices, the Federal Reserve's Beige Book and testimony by Fed chairwoman Janet Yellen to the US House of Representatives will also be closely watched by investors.

The local currency rose to 60.94 euro cents from 60.64 cents yesterday, and fell to 42.85 British pence from 43.09p. It gained to ¥82.75 from ¥82.41 yesterday. The trade-weighted index advanced to 70.87 from 70.68.

(BusinessDesk)