NZ dollar extends gains vs Aussie on weak iron ore, China demand, falls vs greenback

The kiwi dollar fell to 63.72 euro cents as at 8am in Wellington.

The New Zealand dollar extended its gains against the Aussie dollar, which has suffered in the face of weaker iron ore prices and a drop in Chinese manufacturing activity, while falling against the greenback on signs of a stronger US labour market.

The kiwi rose to 95.76 Australian cents as at 8am in Wellington and earlier reached a new four-month high of 95.81 cents, from 95.60 cents late yesterday. The kiwi fell to 70.63 US cents from 70.75 cents.

Iron ore prices have dropped to an eight-month low and in Australia's biggest market for the raw material, data yesterday showed the Caixin manufacturing PMI fell for a third straight month in May to 49.6, a level that signals contraction, from 50.3. While Australian retail sales figures for April showed stronger-than-expected 1 percent growth, private spending rose by a smaller-than-forecast 0.3 percent.

Meanwhile, in the US the ADP employment survey showed 253,000 jobs added in May, compared to a forecast 180,000, boosting speculation the official non-farm payrolls data tonight will also be strong.

"The NZD/AUD continued to nudge higher with the data-flow on both activity and commodity prices continuing to flatter New Zealand," said Con Williams, rural economist at ANZ Bank New Zealand. "That seems unlikely to change anytime soon, but the trick is picking when it's all priced in. The USD also strengthened, led by robust data."

Economists expect the payrolls report will show the US economy added 180,000 jobs last month, down from 211,000 in April but still a robust number and after the ADP report traders said there is scope for an upside surprise.

Wage inflation, however, may remain subdued. The data should keep intact expectations of a Federal Reserve interest rate hike this month after Fed officials reiterated the official view that there will be two more hikes this year.

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There was no immediate market reaction to US President Donald Trump's announcement that the US will quit the Paris climate accord but then negotiate to re-enter the pact on terms more favourable to America.

The trade-weighted index was little changed at 76.39 from 76.40. The kiwi traded at 62.94 euro cents from 62.91 cents late yesterday and declined to 54.79 British pence from 54.97 pence. It fell to 4.8008 yuan from 4.8028 yuan and traded at 78.59 yen from 78.50 yen.