New Zealand dollar up against Australian dollar after dairy price jump

9:18 AM Wednesday Jan 7, 2015

The kiwi dollar increased to 77.92 US cents at 8am in Wellington, from 77.28 cents at 5pm yesterday. Photo / NZ Herald

The New Zealand dollar rose after lower volumes helped push up prices at Fonterra’s GlobalDairyTrade auction overnight. The kiwi touched a fresh post-float high against the Australian dollar as investors favour the outlook for the local economy.

The kiwi increased to 77.92 US cents at 8am in Wellington, from 77.28 cents at 5pm yesterday. The local currency touched 96.22 Australian cents, its highest since the Aussie was floated in 1983, and was trading at 95.95 cents at 8am from 94.97 cents yesterday.

The New Zealand dollar outperformed its peers overnight after prices rose 3.6 per cent at the latest dairy auction as volumes fell, stoking optimism about a recovery ahead for New Zealand’s largest commodity export after a 48 per cent fall in prices last year. The kiwi was also bolstered by reports China is speeding up work on 7 trillion yuan of infrastructure projects to revive slowing growth, boosting optimism about the outlook for New Zealand’s largest trading partner.

“China’s news was enough to ignite the lift in the New Zealand dollar followed by falling offshore yields and a positive GDT overnight,” ANZ Bank New Zealand Agri economist Con Williams said in a note.

Investors are favouring the New Zealand dollar over its Australian counterpart as the economic outlook appears more rosy on this side of the Tasman. New Zealand’s Reserve Bank has indicated it intends to hike interest rates further, compared with Australia where economists are starting to price in interest rate cuts. That makes the kiwi more attractive to investors looking for yield with interest rates in New Zealand already 1 percentage point higher at 3.5 per cent.

“The positive New Zealand dollar story has been enough to deliver post-float highs on this cross, which may temper further extensions higher as local sellers look to take advantage of the overnight move,” said ANZ’s Williams.

Still, he said the recovery in milk powder prices in the latest dairy auction isn’t strong enough to deliver Fonterra’s $4.70 per kilogram of milk solids forecast for the 2014/15 season. Skim milk powder rose 2.8 per cent while whole milk powder rose 1.6 per cent. AgriHQ estimates that would translate to $4.30/kgMS.

Today, traders will be eyeing ANZ’s latest Commodity Price Index, scheduled for release at 1pm, for a gauge of how other sectors are performing.

ANZ expects the kiwi to trade between 77.80 US cents and 78.30 cents today, while against the Aussie it will likely trade between 95.90 Australian cents and 96.40 cents.

The New Zealand dollar touched a 20-month high of 65.42 euro cents ahead of a report on Eurozone inflation tonight, which may signal the region is close to deflation, increasing pressure on the European Central Bank to step up stimulus measures. The kiwi was trading at 65.29 euro cents at 8am from 64.70 cents at 5pm yesterday.

The local currency touched a four-month high of 51.46 British pence, and was trading at 51.29 pence at 8am from 50.65 pence yesterday.

The kiwi edged up to 92.23 yen from 92.19 yen yesterday. The trade-weighted index advanced to 79.49 from 78.83 yesterday.

 

Source: The New Zealand Herald

Australian dollar plunges below US82c

December 17, 2014 – 4:31PM

Mark Mulligan and Yolanda Redrup

The Australian dollar took at steep, unexpected dive on Wednesday.

The Australian dollar plunged more than half a US cent on Wednesday after thin trade and weak sentiment around commodity currencies allowed it to drop below US82¢ for the first time since June 2010.

In local trade, the Aussie was fetching about US81.55¢, after diving suddenly from around US82.16¢. It was also at a new four-and-a-half year low on a trade-weighted basis, which is the measure which most influences policy at the Reserve Bank of Australia.

For most of the day, the currency had held up well despite ongoing turbulence in global markets fuelled by the collapsing Russian rouble and contagion throughout emerging markets.

However, it suddenly lost support around US82¢ as an absence of bidders because of the Christmas wind-down added to positioning ahead of the US Federal Reserve’s December policy meeting early on Thursday morning Australian time.

With the US economy continuing to pull away from most of the rest of the developed world, Fed-watchers are expecting further signals around when the central bank might start lifting interest rates.

Barring any negative surprises, Fed commentary is likely to consolidate the US dollar and US financial assets as safe haven investments amid an increasingly stormy global environment.

HIFX head of corporate sales Dan Bell said Wednesday’s Aussie sell-off was linked to this sharpening divergence.

“This is a bit of positioning leading up to the Fed announcement [on Thursday] morning,” he said.

“There wasn’t a lot going on [on Wednesday] in terms of actual data flow, so I think we just saw the market square up and take out some weak stop-loss orders on the downside”, he said, referring to technical levels which trigger automatic sales of the currency.

IG market strategist Stan Shamu agreed, but suggested the fall might have overshot due to thin trade.

“It’s more of a price action driven move, with traders reacting to the slip below US82¢,” he said.

“But it’s a bit more of an exaggerated move than usual.

“The fact it’s broken below the US82¢ mark has triggered some sort of stop in that region, but in terms of actual news, there isn’t much going on.”

Credit Suisse strategist Damien Boey said the dollar had little support at US82¢ because of consistent downward pressures.

“It was hanging in there as a resistance point for a while, but all the drivers of the currency have just fallen and fallen,” he said.

“The issue with commodity prices is the driver of the weakness is still not well understood. While that’s the case there is no bottom on the cycle,” he said.

HIFX’s Dan Bell said currencies tied to energy and commodities exports – including the Australian dollar – would remain under pressure into the New Year.

His comments come as the Russian government and central bank struggle to arrest the ongoing slide of the rouble, which has succumbed to capital flight.

The rouble’s woes have proved contagious in recent days, with other emerging market commodity exporters under pressure.

“We’re going to see ongoing pressure on commodity currencies over the next few months as these energy prices and oil prices continue to struggle,” said Mr Bell.

“I think the market is starting to wake up to the reality of higher interest rates in the US next year.

“And I think there are some real concerns that a lot of emerging economies have US dollar bond debt exposure, which is going to impact them as the greenback strengthens.”

UBS strategist Niall MacLeod wrote in a note on Wednesday that countries such as Indonesia and India looked vulnerable in this context, although cheaper energy prices would help offset the impact of this on India.

“Combined with emerging market currency weakness, we would also be wary of those markets facing foreign funding liquidity risks, especially ahead of rising US interest rates next year,” he said.

Source : The Sydney Morning Herald

Australian dollar slumps on Reserve Bank of Australia speech, iron ore

November 26, 2014 – 7:49AM

In a speech in Sydney last night, the RBA’s Dr Philip Lowe told the Australian Business Economists annual dinner that the RBA still thinks the Aussie remains too high and it will depreciate as the terms of trade decline. Photo: Louie Douvis

The Australian dollar has shed more than 1 per cent in overnight trading in New York, hammered by RBA deputy governor Philip Lowe’s comments on its value and another slide in the price of iron ore.

The Australian dollar slumped to a low of US85.14¢ in New York trading overnight, its lowest mark since June 2010.

In a speech in Sydney late Tuesday, Lowe told the Australian Business Economists annual dinner that the RBA still thinks the Aussie remains too high and it will depreciate as the terms of trade decline.

“In terms of the exchange rate, the RBA has been saying for a while now that a lower value of the Australian dollar would be helpful from an overall macroeconomic perspective,” according to the text of Lowe’s speech.

“If the exchange rate is to play its important stabilising role, it needs to go down when the terms of trade and investment are declining, just as it went up when the terms of trade and investment were rising. To date, as we expected, we have seen some adjustment, but if our assessment of the fundamentals is correct we would expect to see more in time.”

Also pressuring the Aussie was another slide in the price of iron ore. Ore with 62 per cent content delivered to Qingdao fell 1.2 per cent to $US69.58 a dry metric ton today, the lowest since June 2009, data from Metal Bulletin Ltd showed. Prices are heading for a 13 per cent loss this month, the most since May.

“The biggest problem is on the supply side as majors like BHP and Rio are pushing huge volumes into the lacklustre demand environment,” Paul Gait, an analyst at Sanford C. Bernstein & Co in London, told Bloomberg this week. “To me $US65 feels like a floor.”

Yen lifts on BoJ minutes

The yen is higher after Bank of Japan minutes showed the hurdle to further quantitative easing was high, while the greenback slipped as data showing a deterioration in consumer confidence overshadowed a surprise upgrade in third-quarter US growth.

Still the yen, dollar and euro held in tight ranges since Monday ahead of the US Thanksgiving holiday when US markets will close.

“I don’t see a reason to trade aggressively before Thanksgiving,” said Lane Newman, director of foreign exchange at ING Capital Markets in New York.

Some BOJ board members were concerned that expanding the central bank’s quantitative easing could raise the risk that it will be seen as financing the government deficit, minutes of the October 31 meeting released on Tuesday showed.

Those concerns came after the BOJ stunned the market last month by expanding its annual government debt purchases to ¥80 trillion from ¥50 trillion in an effort to stimulate Japan’s long struggling economy.

That move raised bets the BOJ would pursue more stimulus, pushing the yen to a seven-year low against the dollar last week.

Some analysts said the swift depreciation of the yen, which would help Japanese exporters, might be overdone.

Greenback bolstered by revision

At about 3.30am AEDT, the US dollar was down 0.3 per cent at 117.93 yen after it struck a seven-year high of 118.98 last week. The euro dipped 0.06 per cent at 147.03 yen after hitting a six-plus year peak of 149.12 yen last Thursday, Reuters data showed.

The US dollar earlier got a brief boost after the government upgraded its reading on third-quarter gross domestic product to 3.9 per cent. Its gains faded after the Conference Board reported its index on US consumer confidence surprisingly fell to a five-month low in November.

The euro was up 0.2 per cent at $US1.2464, rebounding from a near two-year low of $US1.2358 struck earlier this month.

The dollar index was down 0.2 per cent at 87.949 after it touched a near 4-1/2 year high of 88.440 on Monday.

Reuters

Source : The Sydney Morning Herald

Australian dollar plunges as unemployment hits 12-year high

2:45 PM Thursday Aug 7, 2014

Surprise unemployment data in Australia has caused its dollar to drop more than half a cent against the greenback.

The Australian dollar fell half a US cent after the unemployment rate hit a 12 year high.

Its currency was trading at 92.97 US cents this afternoon, after hitting a high of 93.58 US cents in morning trade.

Australia’s jobless rate jumped to 6.4 per cent in July, from 6.0 per cent in June, Australian Bureau of Statistics figures showed.

Economists had expected unemployment to remain unchanged.

The total number of people with jobs also disappointed, falling by 300, against expectations 12,000 jobs would be added to the economy.

LTG GoldRock director Andrew Barnett said the employment data was the catalyst for the Australian dollar’s fall, but the currency was already due to drop.

“Any rally in the Aussie is going to be short lived,” he said.

“We’ve got some decent momentum to the downside overall, based on the US economic recovery and speculation mounting on interest rate rises in the United States sooner rather than later.”

Barnett the Australian dollar will also continue to weaken because an interest rate rise by the Reserve Bank of Australia is unlikely this year.

“I wouldn’t be surprised to see the Aussie dollar back under 90 US cents before Christmas,” he said.

The Australian dollar could come under further pressure when the Bank of England (BoE) and the European Central Bank (ECB) hold meetings on Thursday night, Australian time.

“ECB president Mario Draghi is not going to talk the euro up, he’s going to talk it down and the Bank of England potentially could force the pound up if they talk about rising interest rates,” Barnett said.

Meanwhile, the Australian bond futures prices were higher.

At 1200 AEST on Thursday, the September 2014 10-year bond futures contract was trading at 96.555 (implying a yield of 3.445 per cent), up from 96.485 (3.515 per cent) on Wednesday.

The September 2014 three-year bond futures contract was at 97.350 (2.650 per cent), up from 97.260 (2.740 per cent).

-AAP

 

Source : The New Zealand Herald

Economy set to lose momentum with below trend growth ahead

June 18, 2014 – 11:28AM

Australia’s economy will lose momentum later in the year, not helped by a fall in consumer confidence after May’s tough federal budget.

The Westpac/Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, rose in May but is still at a level low enough to indicate a below-trend rate of economic activity in the second half of the year and into 2015.

Westpac senior economist Matthew Hassan said the local economy is suffering a number of challenges.

“The sustained high Australian dollar in the face of falling commodity prices, the sharp fall in consumer sentiment since May and signs of slowing in consumer spending and housing markets,” he said.

“This month’s Leading Index highlights just how much these and other shifts have affected growth momentum with a slowdown likely over the remainder of 2014 and early 2015.”

Mr Hassan said the potential slowdown in economic growth wouldn’t be enough for the Reserve Bank of Australia to chance its stance of keeping the cash rate unchanged for some time to come.

“We expect the bank to again leave rates on hold at its July meeting and through the remainder of 2014 and the first half of 2015,” he said.

The minutes of the RBA’s board June meeting said there were “uncertainties” over what impact the tough federal budget and expected declines in mining investment would have on the economy.

Westpac’s Leading index rose by 0.37 percentage point in May to 0.75 per cent.

AAP

Source : The Sydney Morning Herald

IMF: Australian dollar should trade at ‘low US80¢’

February 13, 2014 – 7:58AM

Peter Martin

Economics correspondent

IMF chief Christine Lagarde. Photo: Bloomberg

The Australian dollar is too high and needs to come down by as much as 10 per cent, the International Monetary Fund says in its latest review of Australia.

Prepared at a time when the Australian dollar was US89¢, the report released on Thursday says the exchange rate is 20 per cent above its post-float average and 5 to 10 per cent higher than it should be.

The estimate is subject to “considerable uncertainty”.

The dollar closed in Australia at US90.63¢ on Wednesday, up from US90.03¢ on Tuesday.

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The IMF model suggests the dollar should be between US80¢ and US85¢, which is also the range identified by Reserve Bank board member Heather Ridout in January as the “magic spot” that would allow exporters to compete.

On Monday Toyota nominated high costs and the “unfavourable Australian dollar” as two of the reasons it planned to stop making cars in Australia. A lower dollar along the lines suggested by the IMF would have substantially cut its costs.

“Australia’s floating exchange rate has been a vital shock absorber for the economy during the upswing of the mining investment boom,” the IMF staff report says. But throughout 2012 and early 2013 as minerals prices fell, “the exchange rate did not depreciate as would normally be expected”.

The report says the dollar has been kept high by capital inflows to fund mining investment, relatively high Australian interest rates and a keenness on the part of foreign investors to hold Australian assets.

It says government officials have expressed surprise that the exchange rate has remained as high as it has and Reserve Bank staff have told it that market intervention remains “part of the policy toolkit, although more recently used only at times of market dysfunction”.

Without a fall in the dollar, Australia will find it hard to get the non-mining investment it will need as mining investment collapses.

The report says mining-related investment has been responsible for almost half of Australia’s economic growth. It expects that to halve as a proportion of GDP.

It nominates high household savings and “relatively weak consumer sentiment” as other drags on growth and says living standards will stagnate without productivity improvements.

It believes interest rates will need to stay low, although it notes the RBA cash rate of 2.5 per cent is now so low as to give it limited scope to deal with further economic shocks. It says the government should be prepared to “temper the pace of budget deficit reduction” if needed.

“Australia’s modest public debt gives the authorities scope to delay their planned return to surpluses in the event of a sharp deterioration in the economic outlook,” the report says.

Without big increases in revenue returning the budget to surplus would require “sizable cuts in projected spending”.

Treasurer Joe Hockey welcomed the report saying its projections were consistent with those in the government’s December budget update.

“The message reinforces the government’s position that difficult decisions will need to be made in order to put the budget back on a sustainable path,” he said. “Improving productivity will be a key challenge.”

Read more: The Canberra Times

Fair or not, the Australian dollar remains overvalued

September 24, 2013

Glenda Kwek

Business Reporter

Australia is one of the cheapest places in the world to buy a new iPad, a survey suggests, raising questions about whether the Australian dollar is overvalued.

An analysis by Commonwealth Securities, which looked at the prices of a 16-gigabyte iPad across 46 countries, found that Australia was the fourth-cheapest place to buy the device, behind Malaysia, Hong Kong and Japan.

The survey compares the price of the iPad according to purchasing power parity (PPP). PPP looks at the prices of a particular good in different countries according to the local currency.

A similar survey by The Economist magazine, the Big Mac Index, recently concluded that the Australian dollar was near fair value in July when it was around US90¢.

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But economists say the dollar has some way to fall to reach fair value. ”Australia’s very expensive. The level of the dollar which would be fair from a PPP-perspective is about 75 to 80 US cents,” ANZ currency strategist Andrew Salter said.

”That’s based on relative consumer prices in Australia and the US. That’s a pretty stable relationship. In fact, the IMF and the World Bank, the Wharton Business School and HSBC also put PPP fair value within that range.”

The idea of fair value for a currency is also one that is hotly debated among analysts. Measures used to judge the strength of currencies include PPP and the real effective exchange rate (REER) – the exchange rate against a range of currencies, adjusted for inflation.

The Australian dollar, when compared with the level of commodity prices – which surged to record levels before weakening in recent months – could also be seen as closer to its fair value than using the PPP models, Mr Salter said.

”If you take into account commodity prices and the interest rate differential – the two things that jointly determine longer-term fair value for the Australian dollar, we put that at about 88 to 90 US cents.”

What is clear is that the Australian dollar has soared above its long-term historical average in the US70¢ to US80¢ range following the start of the mining investment boom, RBS senior currency strategist Greg Gibbs said, citing Bank for International Settlements’ effective exchange rate indices. The BIS looks at up to 61 currencies since the 1960s and using weights based on trade data from 2008 to 2010.

The Australian dollar is sitting about 30 per cent above its average of the past two decades, Mr Gibbs said. ”If you had record interest rates and a currency that was somewhat average, you would anticipate that the economy would be growing much faster than it is. All the evidence would suggest the currency is still restraining the economy.”

The Australian dollar was buying US94.18¢ late on Monday.

Canberra Times

Aussie dollar soars on Fed stimulus comments

July 11, 2013 – 9:01AM

Glenda Kwek

Business Reporter

Aussie dollar … Up sharply as US says it will continue supporting economic recovery.

The Australian dollar has leapt almost 2 US cents after Federal Reserve boss Ben Bernanke said the central bank was not going to turn of its supply of easy money for the recovering US economy.

The local currency took flight on the comments, beginning a gain from 91.2 US cents at 6.45am to 92.97 US cents shoirtly before 9am. Earlier the Aussie was threatening to fall below 91 US cents.

Speaking at a conference in Cambridge, Massachusetts, Mr Bernanke also warned that the full impact on the economy of steep government spending cuts initiated in March was yet to be seen, underscoring the need for more Fed support.

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“The overall message is accommodation,” Mr Bernanke said. He said that a “highly accommodative policy is needed for the forseeable future.”

The comments sent the greenback plunging against the Aussie, the euro and the yen.

Australian shares are also looking at gains when trade opens at 10am.

Like a see-saw

The Fed meeting itself sent the Australian dollar lower, with the minutes showing an appetite among Federal reserve board members to begin tapering the bond-buying program.

But Mr Bernanke’s comments reaffirmed ongoing support for the US economy, triggering the dramatic jump in the Aussie currency.

“The Australian dollar has strengthened quite substantially, and it’s been directly related to the US dollar,” ANZ currency strategist Andrew Salter said.

“The US dollar has weakened substantially following [US Fed chairman Ben Bernanke] Q&A and a speech, and also following the release of the Fed minutes.”

Whenever the US central bank’s hints at a possible start to a winding back of the bond-buying program, the US dollar would strengthen across a range of currencies, which it has over the past few weeks.

But the minutes of the Fed’s meeting in June, released overnight, coupled with Mr Bernanke’s comments, were read by financial markets as dovish, causing the greenback to ease against its counterparts, including the Australian dollar.

The Sydney Morning Herald