The New Zealand dollar touched a fresh three-month low following a drop in dairy prices at Fonterra's latest GlobalDairyTrade auction, making it the worst performing major currency overnight.
The kiwi touched 84.15 US cents, its lowest since March 6, and was trading at 84.27 cents at 8am in Wellington, from 84.59 cents at 5pm yesterday. The trade-weighted index weakened to 78.78 from 79.10 yesterday.
Dairy product prices slid 4.2 per cent to the lowest level since February 2013 in the latest fortnightly auction, marking the eighth consecutive decline as volumes increased.
Whole milk powder prices posted an unexpectedly sharp 8.5 per cent drop while skim milk powder and cheddar prices rose. Reserve Bank governor Graeme Wheeler told the DairyNZ Farmers' Forum in Hamilton last month that the currency shouldn't remain high as export prices fell and that increases in the official cash rate may not be as regular as previously assumed if the exchange rate remains strong.
"You don't often see such a strong response to the milk auction, in this case it was very very clear," said Imre Speizer, senior market strategist at Westpac Bank in Auckland. "A lower milk price without a fall in the currency would cause the Reserve Bank to downgrade its OCR outlook."
