Kiwi rises to 2-week high on TWI basis ahead of dairy auction, CPI data

The New Zealand dollar rose to a two-week high on a trade-weighted basis on expectations tonight's dairy auction will be the third in a row to produce rising prices, while the consumers prices index on Thursday will likely show inflation is back at the mid-point of the Reserve Bank's target range.

The trade-weighted index rose to 76.20 as at 5pm in Wellington from 76.05 last Thursday, before the four-day Easter weekend. The kiwi dollar slipped to 70.06 US cents from 70.22 cents yesterday, to be little changed from 70.02 cents last Thursday.

NZX dairy futures suggest the price of whole milk powder will rise 5 percent to 6 percent at tonight's auction, after a gain of 2.4 percent at the April 4 event. The GDT Price Index has gained in each of the past two auctions. Meanwhile, economists expect inflation was 0.8 percent in the first three months of the year, for an annual rate of 2 percent, according to the median in a BusinessDesk poll. That would exceed the central bank's projection of inflation of 0.3 percent in the first quarter for an annual rise of 1.5 percent.

"Higher inflation and a better dairy auction should be helping the kiwi," said Imre Speizer, senior market strategist at Westpac Banking Corp. While the CPI data should be quite strong, it was probably spurred by one-off events and the 2 percent annual rate may be "the high point for a while".

"It's not going to slip back to 1.3 percent" but may retreat to around 1.7 percent, he said.

"The kiwi is one of the more resilient currencies at the moment. We've had the good economic story in the background for quite a while and more timely will be the dairy auction tonight," Speizer said.

The kiwi dollar rose to 76.39 yen from 76.05 yen late yesterday and from 76.19 yen last Thursday. US stocks rose and the VIX fell to its lowest in almost a week overnight following North Korea's unsuccessful missile launch over the weekend. The US dollar gained from its overnight lows after US Treasury secretary Steven Mnuchin said a strong dollar was good for the US economy over the long term, comments that appeared to run counter to President Donald Trump's remark that the greenback was too strong.

The VIX is the Chicago Board Options Exchange Volatility Index, and is known as Wall Street's fear gauge.

The kiwi dollar fell to 4.8261 yuan from 4.8364 yuan yesterday as Chinese data showed retail sales and industrial production both came in stronger than expected in March from a year earlier. The local dollar traded at 55.75 British pence from 56 pence late yesterday and fell to 65.82 euro cents from 66.12 cents.

It traded at 92.70 Australian cents from 92.48 cents late yesterday, after the minutes of the last Reserve Bank of Australia meeting showed policymakers were facing conflicting pressures from a weak jobs market and a heated housing market.

The 2-year swap rate fell 3 basis points to 2.28 percent and the 10-year swaps fell 3 basis points to 3.25 percent.

(BusinessDesk)