NZ dollar falls after dairy prices drop

The New Zealand dollar fell, hit by a stronger US dollar and weaker prices at the GlobalDairyTrade auction, stoking concern about the outlook for New Zealand's largest export commodity.

The kiwi dropped to 66.91USc at 8am in Wellington, from 67.46USc at 5pm yesterday. The trade-weighted index declined to 73.05 from 77.27 yesterday.

The kiwi weakened as traders favoured the greenback, betting US economic data broadly in line with expectations will prompt a hike in US interest rates next month. A 7.4% drop in average prices at the GDT auction overnight also weighed on the kiwi, as increased production from Europe and subdued demand keeps a lid on prices.

"While the US dollar advanced overnight, the New Zealand dollar underperformed other G-10 currencies following the weaker-than-expected GDT auction," ANZ Bank New Zealand agri economist Con Williams and economist Dylan Eades said in a note.

The local focus today will be on third-quarter labour market data scheduled for release at 10:45am. The unemployment rate is expected to increase to 6% from 5.9% the previous quarter as an increase in labour supply outpaces employment growth, keeping a lid on wage inflation. ANZ expects the unemployment rate to rise to 6.1% and says it could be higher if the participation rate doesn't ease from near record highs.

"The New Zealand dollar is likely to remain under downward pressure during the local session, with risks to the third quarter labour market report skewed to the downside," Messrs Williams and Eades said in their note.

ANZ expects the kiwi to trade between 65.90USc and 67.80USc today.

The local currency fell to 93.01Ac from 93.69Ac yesterday after the Reserve Bank of Australia kept its benchmark interest rate unchanged and said the prospects for an improvement in economic conditions had firmed a little over recent months.

The kiwi slipped to 61.09 euro cents from 61.23 cents yesterday, declined to 43.39 British pence from 43.74 pence, fell to 81.05 yen from 81.37 yen and weakened to 4.2399 yuan from 4.2736 yuan.

(BusinessDesk)