Dollar touches fresh five-year low as commodity prices drop

The New Zealand dollar touched a fresh five-year low overnight as commodity prices fell on concern about waning demand.

The kiwi touched 66.19USc, and was trading at 66.52USc at 8am in Wellington, from 66.61USc at 5pm yesterday. The trade-weighted index was at 70.34 from 70.29 yesterday.

US, German, UK and Japanese long-term bond yields fell overnight as investors fret over global growth prospects and commodity prices fell, Bancorp Treasury Services said in a note. Concern about growth is fuelled by the potential implications of a Greek default and euro exit and persistent falls in Chinese equities markets. The rush into bonds overnight coincided with declining prices for oil, iron ore, aluminium, copper, gold and silver.

"We are at the end of the super cycle for commodities ... that's well and truly over for commodities at this point," said Martin Rudings, senior dealer foreign exchange at OMF. "You remove the price demand for these commodities and the currency struggles, or the currency needs to realign, and I think that's what's going on."

The prospect of interest rate hikes in the US, most likely starting in September, is also underpinning declines in the local currency, Mr Rudings said. That contrasts with New Zealand, where traders are pricing in a 96% chance the Reserve Bank will cut the benchmark interest rate at this month's meeting, according to the Overnight Index Swap curve.

"There is no way out for the kiwi dollar," Mr Rudings said.

He expects the kiwi to fall further to 60USc by the end of this year.

Today, New Zealand's Crown accounts for the 11 months through May are scheduled for release.

Tonight, the minutes to the Federal Reserve's last meeting will be eyed for signs of increased caution on interest rate hikes, ANZ Bank New Zealand said in a note.

The New Zealand dollar advanced to 89.25Ac from 88.97Ac yesterday after the Reserve Bank of Australia yesterday kept its benchmark interest rate unchanged.

The local currency was little changed at 60.36 euro cents from 60.37 cents as traders await developments over Greece debt negotiations. European leaders are meeting today, but Greece isn't expected to present new proposals for economic reforms until tomorrow.

The kiwi advanced to 43 British pence from 42.72p yesterday, and slipped to ¥81.55 from ¥81.70.

(BusinessDesk)