NZ dollar falls as milk powder prices slide

Photo / Dean Purcell

The New Zealand dollar fell as milk powder prices declined in the latest globalDairyTrade auction, with the currency's slide capped by reinsurance flows from offshore to pay claims from the Christchurch earthquake.

The average price of milk powder fell 2.4 per cent to US$4,280 at Fonterra's online auction, with the decline led by whole milk powder which dropped an average of 5.6 per cent.

That saw the kiwi dollar drop 20 basis points and marks the second decline in a row, after prices fell 8.2 per cent at the previous auction. Dairy products are New Zealand's largest export commodity.

The effects of the auction on the currency were however muted by reinsurance flows in the wake of the Christchurch earthquake, which caused $15 billion in damages and claimed 166 lives.

"Demand from offshore is supporting the kiwi, with reinsurance flows helping to offset the weaker leads" said Tim Kelleher, head of institutional FX sales New Zealand at ASB Institutional. "

The kiwi fell to 76.72 US cents from 76.94 cents yesterday, and dropped to 67.35 on the trade-weighted index of major trading partners' currencies from 67.52.

It fell to 74.25 Australian cents from 74.53 cents yesterday, and rose to 65.14 yen from 64.88 yen. It fell to 53.97 euro cents from 54.23 cents yesterday, and declined to 47.14 pence from 47.63 pence previously.

China raised interest rates overnight in a bid to clamp down on rising inflation in the world's second biggest economy. The central bank raised the benchmark one-year lending rate to 6.31 per cent from 6.06 per cent previously, and the one-year deposit rate from 3 per cent to 3.25 per cent.

US Federal Reserve chairman Ben Bernanke reaffirmed his support for the central bank's asset purchase programme through to June in a speech yesterday, after the minutes from the latest Federal Open Market Committee showed policy makers are still divided on whether to maintain the fiscal support.

The kiwi dollar is expected to trade today within its recent range of 76.50 US cents and 77 cents, Kelleher said.