Kiwi a tad higher vs greenback

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The New Zealand dollar dipped after the Ministry for Primary Industries said a cattle disease had been detected in a dairy herd in South Canterbury but swiftly pared its losses on the back of a weaker USD ahead of the US Federal Reserve's two-day policy meeting and events across the Tasman.

The kiwi traded at 74.38 US cents at 5 pm versus 74.33 US cents at 8am in Wellington and 74.32 cents late yesterday but dipped to 74.02 when MPI said the cattle disease mycoplasma bovis has been detected in a dairy herd in South Canterbury, the first known outbreak in New Zealand. The trade-weighed index was unchanged at 78.51.

"The dairy herds headline saw it sell off temporarily, only to rally straight back up on a weaker (US) dollar," said Ross Weston, a senior trader at Kiwibank. The fact that MPI said the cattle disease does not infect humans and presents no food safety risk coupled with the weak greenback saw it recover very quickly, he said.

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"Everyone is setting up for the Fed and looking for some confirmation that the string of weak inflation outturns is going to have some impact on their thinking. They have gone from it being a transitory problem to being a bit more ingrained, the low inflation environment," he said.

The Fed is due to kick off its policy meeting later in the global trading day and the focus will be on whether it indicates another rate hike is likely this year or not, said Weston, who says the market is split, as shown by futures markets pricing a roughly 50 per cent chance that the Fed will hike rates next in December.

Investors will also be keeping a close eye on events across the Tasman tomorrow as Australia reports its second-quarter consumer price inflation data and Reserve Bank of Australia Governor Philip Lowe is due to deliver a speech titled "The Labor Market and Monetary Policy."

Weston said that if other nations are anything to go by the Aussie inflation data may be weaker than expected. "You only have to look around the globe. It missed in the US, Japan and here, so if you are running with that theme you would expect it to miss slightly," he said. Economists surveyed by Bloomberg are tipping inflation to be up 0.4 per cent on the month and 2.2 per cent on the year.

There will also be some interest in Reserve Bank of New Zealand Assistant Governor John McDermott's speech on economic trends and how they help implement the bank's flexible inflation targeting framework given the next monetary policy decision is only a few weeks away.

The kiwi traded at 63.77 euro cents from 63.68 cents late yesterday and at 82.55 yen from 82.50 yen. It traded at 57.09 British pence, unchanged from yesterday and at 5.0192 yuan from 5.0237 yuan. It was at 93.69 Australian cents from 93.78 yesterday.
New Zealand's two-year swap rate rose 1 basis point to 2.22 per cent while the 10-year swaps rose 2 basis points to 3.28 per cent.