bizEDGE New Zealand logo
Story image

NZ dollar rises after dairy gains, Wheeler downplays rate-cut prospects

The New Zealand dollar rose against most major currencies after the price of whole milk powder jumped in the latest auction, sentiment for the greenback waned and Reserve Bank governor Graeme Wheeler said keeping interest rates on hold for now was more prudent than contemplating a cut.

The kiwi traded at 74.07 US cents at 5pm in Wellington, recovering from an overnight slump that sent it as low as 71.75 cents. The trade-weighted index gained to 76.57 from 75.02 late yesterday.

A smorgasbord of events both on and offshore have sent the kiwi dollar on a wild ride in the past 24 hours, starting with yesterday's decision by the Reserve Bank of Australia to cut its cash rate to 2.25 percent, sending its currency and the kiwi lower. Overnight the price of whole milk powder soared 19 percent, stoking optimism the dent to the economy from last year's tumble in prices won't be any worse. The kiwi extended gains as sentiment for the greenback was eroded by news of a possible Greek debt solution, rising oil prices and US factory orders that disappointed the market.

The kiwi initially sold off after fourth-quarter employment data showed the jobless rate unexpectedly rose to 5.7 percent, belying a rise in the participation rate to a record 69.7 percent and employment rose a greater-than-expected 1.2 percent. Wheeler then delivered a speech in Christchurch arguing that keeping rates on hold was the most prudent option given the potential for domestic inflation to accelerate. The kiwi climbed even though Wheeler reiterated that its level was unjustified and unsustainable.

"The kiwi looks like it has turned around a little bit - maybe seen its near-term bottom," said Michael Johnston, senior trader at HiFX. The kiwi is likely to find support at around 73.50 US cents and resistance at 75 cents in the next 24 hours" and he expects the kiwi to climb to the top end of that band.

Looking ahead, the next hurdle is US non-farm payrolls, which will provide new information on the strength of the US labour market and the American economy after data last night showed factory orders were weaker than expected.

The New Zealand dollar gained to 94.84 Australian cents from 94 cents yesterday. The local currency rose to 64.64 euro cents from 63.57 cents yesterday, advanced to 48.89 British pence from 47.94 pence and increased to 87.35 yen from 84.45 yen.