The New Zealand dollar touched a fresh five-year low after dairy prices fell to a six-year low in the GlobalDairyTrade auction overnight, paced by whole milk powder, the nation's key export commodity.
The kiwi touched 67.27 US cents and was trading at 67.41 cents at 8am in Wellington, from 67.95 cents at 5pm yesterday. The trade-weighted index dropped to 70.73 from 70.99 yesterday.
The GDT average winning price dropped 5.9 percent, while whole milk powder sank 10.8 percent. Weaker dairy prices are weighing on New Zealand's economy, cited as a reason for decade-low rural confidence levels, weaker business confidence and are firmly on the radar of the Reserve Bank which has begun cutting the official cash rate to bolster slowing growth. ASB Bank this morning joined Deutsche Bank in forecasting three further interest rate cuts this year, citing the impact of a slower recovery in dairy prices.
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"The market found plenty of reasons to sell New Zealand dollar following yet another weak GDT auction," ANZ Bank New Zealand agri economist Con Williams and senior FX strategist Sam Tuck said in a note. "There is little on the horizon at present to suggest any meaningful turnaround in prices over coming months. The risk is we see more, rather than less, OCR cuts."
