NZ dollar slips below 83 US cents on fall in dairy prices

File photo / NZ Herald

The New Zealand dollar dipped below 83 US cents for the first time since February as manufacturing data pointing to a recovery in the US strengthened the greenback while a decline in dairy prices at Fonterra Cooperative Group's latest auction weighed on the kiwi.

The local currency touched a low of 82.89 US cents, and was trading at 83.14 cents at 8am in Wellington, from 83.46 cents at 5pm yesterday. The trade-weighted index was at 78.79 from 79.02 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, rose to its highest since July last year on optimism about a recovery in the world's largest economy after the Institute for Supply Management's US manufacturing activity index rose more than expected in August to its strongest level since March 2011. Meanwhile demand for kiwi waned after dairy product prices dropped to the lowest level since July 2012 in Fonterra's latest GlobalDairyTrade auction. Dairy products are New Zealand's largest commodity export.

"The US dollar was strong because of strong data, and milk prices fell," said Westpac Banking Corp New Zealand senior market strategist Imre Speizer. The kiwi is "under downward pressure still," he said.

The local currency has declined from a high of 88.35 US cents in July, weighed down by falling commodity prices, slower economic growth forecasts and a pause in the Reserve Bank's hiking cycle.

The next major support level is 82.45 US cents, Westpac's Speizer said.

Today, New Zealand data is released on second quarter building work at 10:45am.

However traders will likely be focused on Australia, where data is published on second quarter gross domestic product and Australian Reserve Bank governor Glenn Stevens is scheduled to speak to the Committee for Economic Development of Australia at a luncheon in Adelaide, which is open to the media.

The Reserve Bank of Australia yesterday kept the cash rate unchanged at 2.5 percent and said a "period of stability" in interest rates was warranted given the outlook for inflation. Stevens said the Australian dollar "remains above most estimates of its fundamental value," especially given the decline in commodity prices.

The kiwi declined to 89.60 Australian cents from 89.79 cents yesterday, slipped to 63.32 euro cents from 63.61 cents and was little changed at 87.41 yen from 87.44 yen.

The local currency advanced to 50.47 British pence from 50.33 pence yesterday after a poll showed support for Scottish independence had increased ahead of a referendum in two weeks that could see Scotland split from the rest of the UK.