The New Zealand dollar dropped, hit by a double whammy as dairy prices declined further at the latest GlobalDairyTrade auction and after a report stoked speculation the Federal Reserve would hike interest rates next month.
The kiwi touched a low of 65.20 US cents this morning, and was trading at 65.33 cents at 8am in Wellington, from 65.63 cents at 5pm yesterday. The trade-weighted index fell to 69.66 from 69.96 yesterday.
The US dollar index, which measures the greenback against a basket of currencies, jumped higher after Wall Street Journal reporter Jon Hilsenrath quoted Federal Reserve Bank of Atlanta president Dennis Lockhart, who represents centrist views on the Fed, saying the US economy is ready for the first increase in interest rates and it would take a significant deterioration in the data to convince him not to move in September.
The kiwi weakened further after whole milk powder prices sank 10.3 per cent in the GDT auction overnight, raising concerns about the outlook for New Zealand's key export commodity as the country ramps up seasonal production in an environment of weak demand.
"It's bad for the kiwi," said Imre Speizer, senior market strategist at Westpac Banking Corp in New Zealand. "The Lockhart thing is a plus for the US dollar, all currencies will fall against the US dollar anyway, and bad milk means the kiwi underperforms everything else as well so there are two reasons for the kiwi to fall."
