NZ dollar under pressure on money printing, dairy concerns

The kiwi was trading at 59.48 US cents at 5pm. Photo / 123RF

The New Zealand dollar remained under pressure against both the US and Australian dollars on concerns the Reserve Bank of New Zealand may start buying bonds directly from the government and on the outlook for dairy prices.

The kiwi was trading at 59.48 US cents at 5pm in Wellington from 59.56 cents at the same time yesterday and at 94.19 Australian cents from 94.55 cents. The trade-weighted index was at 67.80 from 67.97.

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Reserve Bank governor Adrian Orr had been talking about buying bonds directly from the government, rather than through the secondary market, as a money printing mechanism, "which is not the way central banks usually do it," said Pat Gilligan, a director at Forex.

Jason Wong, market strategist at Bank of New Zealand, said the RBNZ had outlined a large asset-buying programme, which would probably be enlarged as government debt increases. The extent of the RBA's money printing activities, known as quantitative easing, was "cloudier."

"As a result, we see more chance of greater QE in NZ than Australia – in the year ahead more than twice as a percentage of GDP in government bonds – which is NZ dollar negative," Wong said.

Earlier today, NZX said the outlook for the next dairy season had quickly deteriorated following the poor result at the latest Global Dairy Trade auction, which saw the headline price index fall 4.3 per cent.

NZX's forecast for the milk payout has plummeted 53 cents to $5.96 per kilogram of milk solids.

"I just think the kiwi looks a bit heavy and needs to go a bit lower, given what's happening in the economy," Forex's Gilligan said.

"The demand for commodities is just going to be lower," he said.

The market is now looking to the US unemployment claims data due for release later today, which is unlikely to provide any good news. Last week's data showed 22 million people in the US had applied for unemployment benefits since late March.

Economists are forecasting another 4.3 million will have applied this week. The data is for the week ended April 18, the same week the US government conducted its survey for the monthly employment.

The New Zealand dollar was trading at 48.19 British pence from 48.49 at 5pm yesterday, at 54.99 euro cents from 54.90, at 64.11 yen from 64.08 and at 4.2130 Chinese yuan from 4.2179.

The bid price on the two-year swap rate closed at 0.3230 per cent from 0.3275 per cent yesterday, while 10-year swaps were at 0.8550 per cent from 0.8575.