The New Zealand dollar touched a fresh five-year low after dairy prices fell to a six-year low in the GlobalDairyTrade auction overnight, paced by whole milk powder, the nation's key export commodity.
The kiwi touched 67.27 US cents and was trading at 67.41 cents at 8am in Wellington, from 67.95 cents at 5pm yesterday. The trade-weighted index dropped to 70.73 from 70.99 yesterday.
The GDT average winning price dropped 5.9 percent, while whole milk powder sank 10.8 percent. Weaker dairy prices are weighing on New Zealand's economy, cited as a reason for decade-low rural confidence levels, weaker business confidence and are firmly on the radar of the Reserve Bank which has begun cutting the official cash rate to bolster slowing growth. ASB Bank this morning joined Deutsche Bank in forecasting three further interest rate cuts this year, citing the impact of a slower recovery in dairy prices.
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"The market found plenty of reasons to sell New Zealand dollar following yet another weak GDT auction," ANZ Bank New Zealand agri economist Con Williams and senior FX strategist Sam Tuck said in a note. "There is little on the horizon at present to suggest any meaningful turnaround in prices over coming months. The risk is we see more, rather than less, OCR cuts."
ANZ expects the kiwi to trade between 66.50 US cents and 67.80 cents today.
In New Zealand today, traders will be eyeing the latest ANZ Commodity Price Index as well as housing data from Quotable Value.
Tonight, the focus will be on the key US nonfarm payrolls report ahead of a US public holiday on Friday for Independence Day. US data including the ADP employment report and the ISM manufacturing survey yesterday were better than expected.
The New Zealand dollar was little changed at 60.98 euro cents from 61 cents yesterday after Greece's creditors rejected new reform proposals, saying negotiations will not resume until after a Greek referendum on the bailout plan on Sunday.
The kiwi was little changed at 88.08 Australian cents from 88.02 cents yesterday, weakened to 43.14 British pence from 43.27 pence and dropped to 83.01 yen from 83.23 yen.