NZ dollar holds above 77c amid lacklustre dairy auction

Photo / Dean Purcell

The New Zealand dollar has held above 77 US cents, lagging behind other risk-sensitive currencies, after the latest Fonterra auction failed to attract as big a price rise in milk powder as expected.

The average trade-weighted price across all products on Fonterra's globalDairyTrade platform rose 1.2 per cent to US$3,960 a tonne, extending gains from the last auction, though falling short of expectations.

That kept the kiwi on the back-foot as other higher-yielding assets gained amid bullish investor sentiment in the Euro-zone.

Stocks on Wall Street and in Europe gained amid the optimistic outlook for the troubled Euro-zone.

"The kiwi underperformed as yields slipped back a little on a relatively soft Fonterra auction, which wasn't as high as expected," said Imre Speizer, market strategist at Westpac Bank. The euro led gains in currency markets, "driven by better data in the Euro-zone on very strong sentiment survey."

The kiwi slipped to 77.04 US cents from 77.16 cents yesterday, and declined to 69.13 on the trade-weighted index of major trading partners' currencies from 69.25.

It increased to 63.71 yen from 63.61 yen yesterday, and fell to 77.14 Australian cents from 77.38 cents. It dropped to 57.63 euro cents from 57.83 cents yesterday, and was down to 48.25 pence from 48.35 pence.

Speizer said the currency may trade between 76.50 US cents and 77.50 cents today, with little local data on the horizon until tomorrow's fourth-quarter consumer price index.

Economists expect a 2.3 per cent quarterly increase, according to a Reuters survey, as the inflation data accounts for the government's hike in goods and services tax. Still, this may not eventuate as predicted with soft consumer spending damping retailers' ability to pass on the GST increase.

European finance ministers failed to reach any meaningful accord on the region's indebtedness at their meeting in Brussels, and continued to discuss extending their emergency bail-out fund and preparing new bank stress tests.

Britain reported faster-than-expected monthly inflation of 1 per cent in December, prompting investors to bring forward their expected timing of tighter monetary policy.

The Bank of Canada held its key interest rate at 1 per cent as expected, and increased its growth forecasts for 2011 and 2012. Still, the bank said any further rate hikes will be "carefully considered," prompting analysts to pare back rate hike expectations in the near term. The kiwi rose to 76.45 Canadian cents from 75.96 cents yesterday.